A Word of Caution on Dividing Pension Benefits

On behalf of The Marks Law Firm, L.L.C. posted in Divorce, Marital Property, Property Division, Retirement Accounts, Qualified Domestic Relations Orders on Tuesday, June 10, 2014

Many spouses think that dividing pension benefits should be relatively simple and not much different than dividing other marital property – each spouse gets a certain percentage, usually half (50%).  While that seems very logical for a fixed value asset like a bank account or the equity in a house, that approach does not apply exactly the same way to an asset whose value will change over time, as with a pension benefit.

Missouri courts look at a pension benefit as a mixture of separate property and marital property.  A spouse only has a legal claim to pension benefits that accrue during the marriage; benefits that accrue before or after the marriage are the separate property of the spouse unless the parties agree otherwise in a prenuptial or postnuptial agreement, or a Marital Separation Agreement.

This last point is critically important and one that has frustrated spouses during litigation because the Marital Separation Agreement did not unambiguously state that the share of the former spouse would cover the full pension rather than only the marital portion.  Such a drafting issue could have major financial consequences – a pension benefit grows considerably more as its principal contributions increase, so the greatest increase in value often take place in the later years of the pension, so a difference of six to fifteen years of contribution could mean hundreds of thousands of dollars.

Recently, the Eastern District, in Roberts v. Roberts, revisited this problem.  Husband and wife divorced in 1990; at the time of the divorce, husband, a government employee, had a Civil Service Retirement Plan.  The separation agreement the parties entered awarded to wife 50% of the plan, but it did not state explicitly in the award whether to measure the value of the plan for wife as of the end of the marriage or the date husband retires.  Husband believed the separation agreement meant 50% of the plan at the time of dissolution in 1990.  Wife and the plan administrator read it to mean 50% of the plan at the time of retirement in 2013 – a difference that translates into hundreds of thousands of dollars.  Husband sought a clarifying order of the court making the wife’s share limited to the date of dissolution.  The court adopted the order and wife appealed.

On appeal, the Eastern District noted that a court has no authority to award a former spouse future pension benefits because they are the separate property of the spouse.  A court may adopt a separation agreement where the parties agree to share in the future benefits.  In this case, the court examined the entire separation agreement and in other parts of the agreement the parties waived any claim to each other’s separate property, and in one provision dealing with an early withdrawal wife retained a claim to a fixed dollar amount based on the value at the time of dissolution.  Utilizing these provisions, the Eastern District found the agreement as a whole only awarded wife half of the pension as of the date of dissolution.  As a result, wife lost a significant amount of money.

The warning of the appellate court could not be more clear:  if parties want to contract to award a spouse a share of the post-dissolution benefits of a pension, the parties must do so by declaring that intention in clear and unambiguous language.

If you have questions about dividing pension benefits in divorce, contact our St. Louis family law attorneys – we can help.

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