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Eligibility for Social Security and the Effect on Property Distribution Upon Divorce
© 2005 National Legal Research Group, Inc.
IOWA: In re Marriage of Crosby, 699 N.W.2d 255 (Iowa 2005)
The trial court erred by awarding the wife 50% of the marital share of the husband's CSRS retirement benefits. The award was reduced to 25%, because the wife was younger and healthier, and because she was eligible for Social Security from her employment as a nurse, while the husband as a CSRS member was not so eligible. The trial court erred in directing that a monetary award for the division of nonretirement assets and an attorney's fees award be payable from the husband's defined contribution retirement plan. On the facts presented, the wife had no claim to any disability benefits which became payable to the husband after the divorce. The trial court properly subtracted from the husband's share of the proceeds from the sale of the marital home certain expenses incurred because of the husband's wrongful failure to pay the mortgage, and because of his waste of the premises.
The parties were divorced after an eleven-year marriage. The husband was employed by the United States Post Office, and participated in the Civil Service Retirement System (CSRS), the older of the federal government's two retirement plans for its civilian employees. Like all CSRS employees, the husband was not eligible for Social Security. He was eight years older than the wife, forty-six as opposed to thirty-eight, and still suffered residual effects from a stroke he suffered in 2001. The wife was employed privately as a nurse, and she was eligible for Social Security benefits.
The trial court awarded the wife one-half of that portion of the husband's CSRS benefits which was acquired during the marriage. The Iowa Court of Appeals reduced the wife's share to 25%. The Iowa Supreme Court affirmed:
The court of appeals reduced Jean's share to twenty-five percent because she is younger, healthier, has a longer expected work life, and she will have her own social security benefits on which to draw. Also, Clayton has no comparable claim to Jean's social security benefits. We conclude that twenty-five percent of Clayton's benefits, as computed above, is the appropriate percentage. The district court's decree as well as its QDRO should be modified accordingly.
Id. at 258. The key facts were therefore the wife's better health and longer expected work life, and the husband's lack of eligibility for Social Security.
The trial court also ordered the husband to pay a monetary award for the wife's share of certain nonretirement marital assets, and to pay a portion of the wife's attorney's fees, from his Thrift Savings Plan, a defined contribution retirement plan available to federal employees, similar to a 401(k) plan or IRA. The supreme court affirmed the awards but reversed as to their source, holding that the division of retirement benefits should not be mixed with other obligations. The court refused to consider tax consequences directly, because the husband had not stated what the tax consequences of the trial court's order would be, but it is certainly common knowledge that early withdrawals from defined contribution plans are subject to a penalty tax.
The court also held that any future disability payments received by the husband might be partly acquired in replacement for lost retirement benefits, and that they could in theory be divided. Nevertheless, the court held that such division would be inequitable upon the facts. It therefore ordered that the wife receive no portion of any disability payments which the husband would become eligible to receive in the future.
Finally, the trial court charged against the husband certain expenses incurred because of his reluctance to pay the mortgage on the marital home, and certain losses attributable to waste while the home was under his control. The supreme court agreed that these amounts should be subtracted, but held that they had to some extent been double-counted by the trial court. The husband's share of the proceeds from the sale of the home was increased from $7.532.54 to $15,148.46. Since the home actually sold for 46,528.77, the husband still received well under one-half of the proceeds. The wife's share was expressly computed as one-half of the $61,659.92 which the home would have sold for if the husband had acted properly, less the wife's share of certain minor cleaning and moving expenses.
Editor's Comment: There is a significant body of nationwide case law on how the court should divide CSRS or other benefits which are partly acquired as a Social Security replacement. Federal law, of course, prevents state courts from treating Social Security benefits as a marital asset. Without discussing any of the nationwide case law, the court seemed to align itself with that body of case law permitting the court to consider differences in eligibility for Social Security as at least a factor in dividing other assets. Some courts reduce the value of CSRS and similar benefits by the amount of the Social Security equivalent contained within those benefits; still other courts hold that differences in Social Security eligibility cannot be considered. See generally Brett R. Turner, Social Security and Equitable Distribution, 20 Equitable Distribution J. 85 (2003); Brett R. Turner, Equitable Distribution of Property 6.06 (2d ed. 1994 & Supp. 2004).
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