Wednesday, January 26, 2011

Pension Rights, Retirement Benefits, and Divorce

Dramatic changes in the economy and the U.S. pension system, along with threats to make cuts to Social Security, have given rise to discussions in regard to the adequacy of retirement wealth.  Financial planners, money magazines, and websites talk about the vast amount of retirement income needed in order to maintain a comfortable lifestyle.  A divorce can make affording retirement much more difficult.

A question that my divorce clients ask is: “Why would the court divide my pension and/or retirement benefits and transfer it to my former spouse when I too need money to live?”  Some litigants believe it is unfair that the law provides for a transfer of a future benefit—a benefit that they need to survive when they retire.  However, pensions and retirement accounts are considered marital property and; marital property is subject to equitable distribution.

Pensions and retirement benefits are future benefits, post-divorce, which may be transferred to a former spouse even many years after the divorce.  Here are the basics in regard to pensions, retirement benefits and divorce:

  • ·         Property must be certain and transferable. There must be a title, right of ownership, or right of possession in regard to the property.  

  • ·         Pensions and other retirement benefits are certain.  If specific requirements are met, the employee-spouse has a right to receive it. 

  • ·         Pensions and other retirement benefits are transferable.  It can be given away in return for consideration. 

  • ·        Pensions and other retirement benefits are contractual rights and not mere expectancies so long as the employee-spouse fulfills certain requirements.

  • ·         Pensions and other retirement benefits accumulated during the marriage are considered marital property because during those years of employment, which coincided with the marriage, the employee-spouse would have brought home a larger salary home to the family.  Employees tend to bring less income home in exchange for good benefits, including a pension and retirement benefits.

It makes good sense for a court to make such a property distribution subject to a divorce, but it can be argued that alimony, maintenance, or spousal support (or whatever it is called in your state), compensates the other party or dependent spouse for whatever inequities are present.  This argument has merit.  However, support obligations are contingent.   This means that it ends with the death of either party or re-marriage of the dependent spouse.  Support obligations can also be modified in order to accommodate a substantial and material change in circumstances such as a catastrophic illness or disability of either party.

The Bottom Line: In this country, we are greatly concerned about protecting the future financial well being of a spouse who can demonstrate a need because there is an income disparity or a spouse who is wholly dependent on his/her employee-spouse.  The Rationale: It is fair.  It is just.  We should not have more people on public assistance but less.    

Legal Disclaimer:  The treatment of pension rights and other retirement benefits as marital property subject to equitable division is controlled by the law of the state where the divorce proceeding is pending.  The informational content presented in my blog should not be used as a resource or considered legal advice.  You should seek advice from a divorce and family law professional in the state where you reside.  

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