Pensions and Marital Property

The pensions of both spouses earned during the marriage are marital property and are subject to division and distribution in divorce. Suppose Sam married Susan five years after he began his employment at ABC, Co., and now 20 years after they married, Sam and Susan divorce. Those benefits Sam earned as a single man before his marriage to Susan are Sam's separate property; those he earned in the 20 years of his marriage are marital and subject to division and distribution. The same routine applies to any pension benefits Susan earned at her employer, XYZ, Corp.

Even when the employee-spouse makes no contribution to his or her pension plan, the pension plan is marital property.

In most equitable distribution states (41 of the 50), premarital pension rights (such as Sam's first five years with ABC) must be separated from marital pension rights (Sam and Susan's 20 years of marriage). In these cases, courts use a coverture fraction, which is also called the Time Rule. In this, a mathematical formula is used to calculate the percentage of the pension distributed to the nonworker spouse, who is usually the wife. In a coverture fraction, the denominator is the employee-spouses total working period (25 years in Sam's case); the numerator is the married years of earning the benefit (20 years for Sam and Susan). In this routine, the benefit times the coverture fraction times the percentage attributable determines the amount paid to the to the alternate payee, the noncontributory wife, Susan.

In the cases of Sam and Susan, classification merely establishes that of his 25 years of accumulated pension rights at ABC Co., 20 years are martial and subject to distribution.

Another consideration in pensions is vesting. Some plans provide for incremental ownership of any company contributions over a period of his or her employment, often 10 years. After this period, the employee is said to be 100 percent vested, with a 100 percent claim against any contributions in his or her account or in the plan. The unvested interest in the plan is that portion to which he has a claim after he or she has been employed for a period defined in the vesting schedule.



Suggested Reading
Pension Issues in Divorce Pension Issues in Divorce
When couples get divorced they must decide how to divide their property. Retirement benefits (pensions) often form a substantial part of the parties' total marital estate and many times are the largest single marital asset afforded the couple. Similar to other assets, pensions are typically divisible in cases of divorce to the extent that they are acquired during the period of marriage.

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