How does a court treat retirement assets that are already in pay status?
Few court decisions discuss the issue of whether retirement assets in pay status are or are not also property with some present value which must be divided as an asset. Fewer and fewer private companies offer defined benefit retirement plans where an employee can receive a set monthly benefit at normal or early retirement even if their employment is terminated before they reach that normal or early retirement age so long as they have worked for a certain number of years – usually 5 years. However many local, state and federal employees do have such benefits.
We also see more cases where one or both parties’ retirement benefits are in pay status. A number of workers such as PERA employees, local, state and federal government workers, police and firefighters, as well as railroad workers, do not pay into social security. Their only retirement source of income is their pension, whether PERA or some other type of plan, because of social security’s governmental pension offset rules. However federal law and Colorado case law tells us we can’t divide social security but we must divide pensions. Railroad employees have some protection with both Tier I and Tier II retirement benefits. Like social security, Tier I benefits are not divisible by law. However many other employees who work for a governmental entity, are not allowed to contribute to social security and their pension is their equivalent of social security. Social security may not be divided but it can be considered as a financial circumstance that might support a division of the remainder of the marital estate that is not equal.
Colorado’s statute directs courts to divide the marital estate (including pension plans or benefits that are assets) equitably but not equally.
Many judges start with the idea that equal is equitable especially with long-term marriages. However, is it equitable to ask a PERA employee to divide his/her monthly pension benefit with his/her spouse when he/she cannot receive any of his/her spouse’s social security? It should not be considered equitable but there is very little case law, both in Colorado and around the country, that addresses this lack of fairness. The most important case in Colorado is in re Marriage of Morehouse, 121 P.3d 164 (Colo.App. 2005) which held that a court may consider Social Security benefits without violating federal law and found a crucial distinction between: (1) adjusting property division so as to indirectly allow invasion of benefits; and (2) making a general adjustment in dividing marital property on the basis that one party, far more than the other, can reasonably expect to enjoy a secure retirement. The court said,” while a trial court may not distribute marital property to offset the computed value of Social Security benefits, it may premise an unequal distribution of property –using, for example, a 60-40 formula instead of 50-50 –on the fact that one party is more likely to enjoy a secure retirement.”
With over 30 years of experience in the field of family law, Jennifer Holt has successfully litigated numerous cases in the district and appellate courts, including high conflict cases. She is experienced and well-versed in child-related issues, paternity/maternity, parenting time/visitation and parenting responsibility/custody, grandparent visitation, adoptions and relocation. She received the Volunteer Lawyer of the Year from the Denver Bar Association and is recognized for having a superb Avvo rating.