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Substitute Benefits as Marital Property
© 1995 National Legal Research Group, Inc.
Under some public pension plans, government employees do not participate in the Social Security system. For these employees, their pension constitutes a substitute for Social Security. Should these substitute pension benefits be treated similarly to Social Security benefits and thus be sheltered from equitable distribution?
Substitute Benefits as Marital Property. Several courts have concluded that a pension which is a substitute for Social Security may nonetheless be treated as marital property. Mann v. Mann, supra (state benefits at stake here were created and governed by state law, so their division did not infringe upon federal law); In re Marriage of Sedbrook , 16 Kan. App. 2d 668, 827 P.2d 1222 (1992) (firefighter's pension held marital even though those pension rights were in lieu of Social Security benefits); Olson v. Olson, supra (highway patrolman's retirement fund was a substitute for Social Security but was not akin to Social Security and thus could be treated as marital property); Loudermilk v. Loudermilk, supra (correct to include as marital property husband's federal civil service pension, which he would receive in lieu of Social Security, while not including the wife's contributions to her Social Security account).
Some Pennsylvania cases have held, however, that pension benefits which function as a substitute for Social Security should be excluded from the marital estate. The leading case is Cornbleth v. Cornbleth , 397 Pa. Super. 431, 580 A.2d 369 (1990), which held that a portion of a spouse's federal civil service pension was exempted from the marital estate to the extent that it was in lieu of a Social Security benefit. Even though the husband's nonparticipation in Social Security did not trigger any federal preemption, that nonparticipation made it fair to exclude a portion of the pension from the marital estate as a matter of state law, the court decided. Explaining how to put Social Security participants and civil service retirement system participants on an equal footing, the court in Cornbleth said that the first step is to compute the present value of Social Security benefits had the employee been participating in the Social Security system. This present value should then be deducted from the present value of the employee's pension to arrive at a figure for the marital portion of the pension, the court said.
Cornbleth was followed in Twilla v. Twilla , ___ Pa. Super. ___, 664 A.2d 1020 (1995) (husband's federal civil service pension should not be included as a marital asset, where the value of that pension benefit was less than the amount of Social Security benefits that he would have accrued if he had participated in the Social Security system), and Endy v. Endy , 412 Pa. Super. 398, 603 A.2d 641 (1992) (where state police officer would receive no Social Security benefits, the portion of his pension that might figuratively be considered in place of a Social Security benefit should be excluded from the marital estate).
Offset or Factor in Award. Several other courts have decided that cases involving substitutes for Social Security require special treatment. In Coats v. Coats , 63 Ohio Misc. 2d 299, 626 N.E.2d 707 (C.P. 1993), an Ohio court held that a portion of a spouse's civil service pension should not be exempted from the marital estate to the extent that it is in lieu of Social Security benefits, but an offset for the value of the other spouse's Social Security benefits may be equitable in some cases. Calculating the present value of a spouse's Social Security and using that value as a full or partial setoff against the present value of the other spouse's pension does not violate the Social Security Act, the court declared, as this does not amount to a transfer of benefits and simply treats Social Security as one factor among many which may be considered in order to achieve an equitable property division.
In Eickelberger v. Eickelberger , 93 Ohio App. 3d 221, 638 N.E.2d 130 (1994), an Ohio appeals court went even further and held that as a matter of public policy a spouse's Social Security benefits must be considered when allocating the pension benefits of a spouse who did not participate in the Social Security system. If the private employee's Social Security vested during the marriage, the trial court should calculate the potential future monthly Social Security benefits and offset them against the public employee's potential monthly retirement benefits before equitably apportioning the balance of the marital assets, the court said. Accord Smith v. Smith, supra , (Social Security is not a marital asset but must be considered when allocating pension benefits); see also Bain v. Bain , 553 So. 2d 1389 (Fla. DCA 1990) (inequitable to award portion of one spouse's retirement plan, which is in lieu of Social Security, to another spouse as part of property distribution, when the other spouse can also receive Social Security payments under his or her own earnings).
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