Dividing Retirement Benefits and Pension Plans
California is a community property state. All property acquired during marriage is presumed to be community property. The labor expended and the fruits of that labor during marriage are also community property. Retirement benefits are a form of deferred compensation for labor expended during the years of employment. These benefits, whether or not vested at the time of divorce, are community property. Upon divorce, each spouse is entitled to one-half of each community property asset. However, in the case of retirement benefits and pension plans, an employee’s work life often lasts longer than a marriage that ends in divorce. Thus, retirement benefits and pension plans are often a mixed community and separate property asset.
Community property rights only accrue from the date of marriage until the date of separation. The date of separation is when the husband and wife effect a permanent physical separation with the intent not to resume the marital relationship. If the worker spouse was employed and receiving retirement benefits before the marriage, these benefits are separate property. To the extent that the spouse continued working after the parties separated, these benefits are also separate property.
If the worker spouse is eligible to retire but choses not to, the other spouse is still entitled to his or her share of the retirement benefits. A spouse cannot avoid payment of benefits to the other spouse by refusing to retire. Also, death of either spouse does not cut off the right to receive retirement benefits. It is important to note that federal laws cover some pension plans. Federal laws preempt state community property laws and therefore in a case where a federal law governs the distribution of an asset, that law controls.
As discussed, each spouse is entitled to one-half of each piece of community property. According to this general rule, each asset is individually divided. In the case of retirement benefits, a non-pro rata division of property is permitted. The worker spouse may be entitled to keep all of his or her retirements benefits if a payment is made to compensate the other spouse for his or her interest in the community property portion or if the spouse’s one-half community interest is offset with other assets. For instance, the non-worker spouse may keep the family home and the worker spouse may keep his or her retirement as long as the one-half community interest is relatively fair. However, if the value of the pension plan is large compared to other community property assets, an offset or single payment may be difficult to accomplish.
Please contact us if you are considering a divorce from your spouse or a legal separation. Nancy J. Bickford is the only attorney in San Diego County representing clients in divorces, who is a Certified Family Law Specialist (CFLS) and who is actively licensed as a Certified Public Accountant (CPA). Don't settle for less when determining your rights. Call 858-793-8884 in Del Mar, Carmel Valley, North County or San Diego.