Dividing Retirement Benefits
In California, pension/retirement[i] benefits are viewed as a form of deferred compensation for services rendered; an employee acquires a property right to pension benefits when he enters upon the performance of his employment contract.[ii] All property acquired by a spouse during marriage prior to separation is presumed to be community property.[iii] Thus, if the right to retirement benefits accrues, in some part, during marriage and before separation, it is a community asset; meaning, the community (in which the nonemployee spouse as well as the employee spouse owns an interest) has an ownership interest in the benefits.[iv]
When credited time of service is a substantial factor in determining the benefit payable under a defined benefit plan, the extent to which that service was provided during the marriage in comparison to the total duration of service will determine the community share.[v] This is called the “time rule.”
“Generally, under the time rule, the community is allocated a fraction of the benefits, the numerator representing length of service during marriage but before separation, and the denominator representing the total length of service by the employee spouse. That ratio is then multiplied by the total benefit received to determine the community interest.”[vi] Simply put, the community interest in the benefits is that interest accrued/earned during marriage. The nonemployee spouse would be entitled to his or her half of that community interest.
To this end, the Family Code authorizes—demands—the court to make whatever orders are necessary or appropriate to ensure that each party receives the party’s full community property share in any retirement plan, whether public or private, including all survivor and death benefits.[vii] This includes:
- Ordering the disposition of any retirement benefits payable upon or after the death of either party;
- Ordering a party to elect a survivor benefit annuity or other similar election for the benefit of the other party, as specified by the court, in any case in which a retirement plan provides for such an election, provided that no court shall order a retirement plan to provide increased benefits determined on the basis of actuarial value;
- Upon the agreement of the nonemployee spouse, ordering the division of accumulated community property contributions and service credit (as provided in certain enactments);
- Ordering a retirement plan to make payments directly to a nonmember party of his or her community property interest in retirement benefits.[viii]
If a pension/retirement plan is going to be split between the parties, a special order must be prepared to divide the plan—either a Qualified Domestic Relations Order/“QDRO” or a Domestic Relations Order/“DRO.” QDROs are used for private retirement plans and DROs are used for state and federal public retirement plans. An attorney can prepare the QDRO or DRO for you.
[i] A pension/retirement plan refers to an account that is paid into by a person and/or his or her employer for the purpose of saving for retirement. Examples include Employee benefit plans, Defined Benefit Plans, Defined Contributions Plans, 401(k)s, and other cash deferred plans, as well as state and federal public retirement plans, such as CalPERS, LACERA, LACERS, CA State Teachers’ Retirement System, LA City Employees’ Retirement System, Federal Employees’ Retirement System, military pensions, 457 plans, 403b plans, and 401a plans.
[ii] In re Marriage of Peterson (2016) 243 Cal.App.4th 923, 929–930 (citing In re Marriage of Brown (1976) 15 Cal.3d 838, 845).
[iii] Family Code §§ 760, 770.
[iv] In re Marriage of Peterson (2016) 243 Cal.App.4th 923, 929–930 (citing In re Marriage of Lehman (1998) 18 Cal.4th 169, 179).
[v] In re Marriage of Gray (2007) 155 Cal.App.4th 504, 508, fn. 3.
[vi] In re Marriage of Steinberger (2001) 91 Cal.App.4th 1449, 1460 (citation omitted).
[vii] Family Code § 2610 (a).
[viii] Family Code § 2610 (a).