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Pension Community Interest

Posted on February 13, 2017September 17, 2019 by Editor

You and your spouse’s pension, retirement account, and IRA can be a significant factor to consider and often the most valuable asset you have acquired during the marriage. In fact, your retirement accounts may be worth more than all of your other assets combined. In some cases, your pension plans must be “joined” as parties to your divorce case before a court will issue an order regarding how the pension plan will be divided.

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Pension Community Interest

The pension community interest is the amount of money accrued in a spouse’s pension during marriage. This amount is community property which is divided equally upon divorce.

Dividing the Pension Community Interest

The presumption regarding California marital property is that the “community” owns all pension rights attributable to employment by a spouse during their marriage. This includes all pension rights acquired during marriage that survive the discharge or voluntary termination of the employee. The apportionment of a pension plan must be done in a fair and reasonable manner relative to the contributions. Again, the pension community interest is community property.

The Time Rule

This is the method used to calculate the pension community interest, the property you and your spouse acquired during the marriage, to be divided. If the total years of employment by the employee-spouse is a substantial factor in calculating that spouse’s retirement benefits then the community share is equal to a percentage based on the length of time contributions were made to the pension during the marriage divided by the total length of service necessary to earn those benefits.

Should a spouse receive an early distribution from a pension (early retirement), that distribution is also considered community property which is to be divided by both spouses. This is true even if one spouse received the enhancement after separation.

Court Orders

California family court judges must make whatever orders are necessary or appropriate to ensure that each party receives his or her full community property share in any retirement plan, whether public or private, including all survivor and death benefits. This includes ordering a retirement plan to make payments directly to a nonmember of a party’s community property interest in retirement benefits.

Cash-out Method

The Court will determine the present value of the pension based on actuarial evidence presented by the parties. The Court then determines the pension community property interest in the present value based on the percentage of the party’s employment while married and before separation. The Court will then order the pension right to the employee and order an offsetting assets to the non-employee spouse; known as equalizing payments.

In-Kind Division

The Court determines the percentage of the pension that is community based on the spouse’s employment during marriage and before separation. The Court then creates an orders giving one-half of the community portion to the non-employee spouse while leaving the other half with the employee spouse.

Qualified Domestic Relations Order

The court order that details how the pension plan will be divided is called a Qualified Domestic Relations Order (QDRO). The QDRO must be approved by both the benefits provider and the judge to assure that the non-employee spouse will receive those future benefits from the company or organization. QDROs can be extremely complicated and should be handled by an experienced lawyer – most often it will be money you will need to live and rely on at some point in the future.