Eligibility to Collect a Spouse’s Retirement Benefits
As discussed in prior blog posts, retirement benefits earned by a spouse during a marriage are community property.[i] Dividing those benefits can be a challenge. However, since retirement benefits are often one of the biggest assets a couple owns, determining a fair division is essential.
Sometimes, a spouse becomes eligible to retire but does not want to retire yet. This can raise tension between former spouses because the nonemployee spouse may wish to receive retirement benefits immediately, and thus may not appreciate the working spouse’s decision to continue working and thereby not begin collecting retirement benefits until sometime later.
In 1981, the California Supreme Court ruled that a nonemployee spouse could demand to receive his or her share of an employee spouse’s retirement benefits under a pension plan immediately once the employee spouse qualified for them, even if the employee spouse was not yet going to actually retire.[ii] Since then, a nonemployee spouse’s such demand has been coined a “Gilmore demand.”
In response to a Gilmore demand, an employee spouse must either pay the nonemployee spouse the actuarial value of his/her interest (out of pocket), or choose to retire and begin living off the retirement benefits. The Gilmore court noted that, in that case, the employee spouse could compensate the nonemployee spouse in “various ways”: “He could “buy out” [the nonemployee spouse’s] share of the retirement benefits, paying her the present value of her share of the pension plan. (Citation omitted.) Or, he could begin to pay her a share of the retirement payments on a monthly basis.”[iii]
The nonemployee spouse must consider seriously whether making a Gilmore demand is in fact in his or her best interests. In some cases, the spouse may be in need of cash immediately, in which case his or her choices are limited. If cash flow is not an immediate issue, however, the nonemployee spouse should likely seek the assistance of an attorney and/or accountant to determine the best outcome.
Performing an analysis of retirement interests prior to making a Gilmore demand is important because a Gilmore election is irrevocable. Thus, the non-employee spouse will not receive a portion of future benefit increases if a demand is made. A proper analysis will ensure the nonemployee spouse receives the most compensation possible.