In the first installment of what is planned to be a series on dividing retirement / pension benefits during a divorce property settlement, we look briefly at the basics of dividing retirement and pension plans between spouses. The parties’ respective retirement benefits is an important consideration when equitably dividing marital property, because, like the marital residence, they it is often the largest marital asset the parties own.

This frequently makes it extremely difficult to offset the amount of money that one spouse stands to receive from his or her respective retirement fund (earned during the marriage) by awarding other marital property to the other spouse. Because courts like to maximize the value of all retirement and pension funds, it is normally preferable to avoid causing the withdrawal of the accrued monies, and leave the fund growing in the name of the working spouse. But, the problem is that sometimes there simply isn’t other marital property to award to the other (non-earning) spouse to compensate that spouse for the portion of the fund that is his or hers . For this reason, valuing and dividing retirement benefits should be one of the first issues contemplated. Now, on to some of the basics:

Is my retirement / pension considered marital property?

Yes. Just as with any other thing of value that is acquired during the marriage, generally retirement benefits accrued during the mariage are considered to be “marital assets” and subject to dividing between the parties. If a spouse is working during the marriage and this results in the accrual of retrirement benefits, the law sees it as if the non-working spouse contributed equally to the creation of those benefits.

Is it true that my spouse is entitled to half of my pension?

No. Not always. Only the portion of the retirement fund that was contributed to or earned during the marriage is considered “marital property” and subject to division between the parties. The portion of the retirement fund that was earned by the working spouse while unmarried is considered that parties’ separate property and the other spouse has no interest in that money. Therefore the first step is to determine what portion of the retirement fund is marital and what portion is separate property.

How do you value the portion of the retirement fund that is considered “marital”?

In determining the portion of a pension or retirement plan that is considered a “marital asset” and subject to division between the parties, the court should calculate the ratio of the number of years the employed-spouse worked during the marriage to the total number of years he or she worked at the qualifying employment to earn the pension. Only the portion of the pension that was earned during the marriage is a marital asset, and the spouse of the employee is only entitled to a proportionate share of the marital asset.

Example – Employed spouse works 25 years to earn a vested pension of $100,000. 10 of these years were worked during the marriage. This equates to a 40% ratio, and only $40,000 of the pension is a martial asset. Because the division of marital property always begins with an equal division, the non-employed spouse would typically be entitled to $20,000 in this scenario.

Are Social Security Benefits Divided?

No. Not directly, anyway. Social security retirement benefits are not considered to be a marital asset that is to be divided when a couple divorces. A court cannot distribute a portion of one spouse’s SS benefits to the other spouse directly. However, the court does consider the SS benefits when making an equitable division of retirement benefits overall – See Smith v. Smith (1993, Franklin Co) 632 N.E.2d 555 (“while not divisible as a marital asset, SS benefits must be considered when equitably dividing pension benefits”).

Are State and federal retirement plans treated differently?

Yes. The law specifically related to state and federal retirement funds will be the subject of a later post. There are specific rules that govern certain public-forms of pensions, such as military pensions and State pension plans and deferred compensation plans. Those forms of retirement benefits are also impacted by specific federal and state statutes that must be consulted.