California Divorce Blog–Vested and Unvested Retirement Plans and Pensions

Many people are confused regarding the division of retirement plans including Pensions, 401k plans, IRA accounts and other such plans. We start with the proposition that generally speaking, all property acquired during marriage is Community Property and to be divided 50/50. Exceptions to this rule include gifts, inheritance and other types of property. A community property interest may only be acquired during marriage and before separation. [Fam.C. §§ 760, 771(a) & 772] Concomitantly, a spouse’s community property interest arises at the time the property is acquired; it is not affected by a change in the form of the property and may be altered only by judicial decree or joint action between the parties. [Marriage of Rossin (2009) 172 CA4th 725, 732, 91 CR3d 427, 432; Marriage of Moore & Ferrie (1993) 14 CA4th 1472, 1478, 18 CR2d 543, 546].

The California Courts have held that employment benefits provided to an employee or promised to an employee at a future date is considered to be community property and therefore divisible 50/50. Other employment fringe benefits based on a contract right to future benefits after separation (even though unvested and unmatured): To the extent “earned” during marriage and before separation, these interests are allocatable to the community. [Marriage of Harrison (1986) 179 CA3d 1216, 1226, 225 CR 234, 239; see Marriage of Foley (2010) 189 CA4th 521, 527–528, 117 CR3d 162, 167 (contractual right to distribution of partnership profits based on prior year’s performance).

Regarding nonvested or non matured benefits, subject to the court’s sound discretion, either cash-out or inkind division can be made for nonvested or nonmatured benefits. [Marriage of Bergman (1985) 168 CA3d 742, 214 CR 661]. First, there is the “Cash-out option”. Under a cash-out division, the total benefits are awarded to the pensioner spouse and the nonemployee spouse is given offsetting assets equal to the present actuarial value of the CP interest in the pension. (This actuarial value includes reductions for shortened life expectancy in nonvested cases and for the possibility the employee spouse might leave the employment before the pension vests.) [Marriage of Bergman, supra; Marriage of Kasper (1978) 83 CA3d 388, 147 CR 821; Marriage of Brown (1976) 15 C3d 838, 126 CR 633]

Second, there is the “Equality of division” method. Arguably, this method could result in a substantially unequal division, since the pensioner spouse might die before the pension vests or, even after vesting and maturity, before payments on the full actuarial value are realized: i.e., the cash-out places all risk of future receipt of benefits on the employee spouse.
Even so, subject to a fair consideration of all the facts involved, and a realistic actuarial valuation, this disposition is not an abuse of discretion. [Marriage of Bergman, supra].

The Brown Decision cited above is a California Supreme Court decision which is the highest Court in the State of California. Therefore, one can argue that this decision carries substantial weight and is persuasive on this issue.

Please contact Attorney Keith F. Simpson today to discuss your family law matter at (310) 297-9090. Attorney Simpson is located in Manhattan Beach, California. You may also review our website at http://www.simpsonlaw.net for a free consultation today.

Advertisements

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s


%d bloggers like this: