On June 20, 2014, the Supreme Court of Utah was presented with a new question in the division of retirement in divorce cases.
This could be very important to your divorce case, especially if there will be a division of a pension.
The Supreme Court has addressed the division of retirement before, but this case addressed the question of “how to properly determine the amount of the employee spouse’s monthly benefit subject to equitable distribution.”
Let’s start from the beginning. In a divorce, if you or your soon to be ex-spouse has retirement, the marital portion of that retirement may be divided as part of the marital estate.
But in some cases you do not know what the monthly benefit from this retirement will be until the date of retirement.
This raises a few questions, most importantly how much of the monthly benefit will be awarded to the nonemployee spouse, but also what is the “marital portion” of this retirement benefit, and to calculate that we need to know the time of the marriage and the amount of the benefit.
In previous cases the Supreme Court has used the time rule formula to determine the percentage of the retirement that the nonemployee spouse will receive base upon the length of the marriage.
To determine the percentage you divide the number of years (or months) employed and earning toward pension during the marriage, by the number of years (or months) of total service (employment) in which the pension was accruing.
total months of marriage / total months of employment = percentage
For example if you were married for 10 years, and worked for 25 years, and during all of this time you were accruing a pension. Then the percentage would be:
120 months / 300 months = 0.40 or 40%
But that leads us to another question, 40% of what amount, and will the amount include any INCREASES to the monthly benefit that happen after the divorce?
The Supreme Court has not addressed this question before, but provides an answer in Johnson v. Johnson (2014 UT 21).
There are a couple different approaches to determining the monthly benefit amount – it could be the amount the employee would have received at the time of the divorce, it could be the amount the employee will receive upon retirement (which would include any INCREASES to the monthly benefit after marriage), or it could be determined on a case by case basis. T
he court chose the case by case basis or the Context Specific Approach. It tells us in determining the monthly benefit amount courts should consider:
- The extent to which the property was acquired during the marriage.
- The ultimate source of the property.
- How the employee spouse’s career intersected with the marriage.
- The extent to which the marriage contributed to the employee spouse’s pay grade at retirement.
In other words, the monthly benefit amount could be the amount at the time of divorce OR the amount at the time of retirement, including any or all increases to the benefit, depending upon the circumstances of your case.
Therefore, if you are negotiating an agreement with retirement division that requires a future percentage and monthly benefit amount, you should consider these factors and agree upon the benefit amount that will be used in the calculation. This may be a number, or this may include a way to determine that number in the future after retirement.
Using the example above, if the monthly benefit amount is determined at the time of divorce and your pay grade allows you a $100 monthly benefit upon retirement, then the amount the nonemployee spouse will receive is:
$100 x 40% = $40 per month
On the other hand, if the monthly benefit amount is determined at the time of retirement and there have been increases which increase your pay grade to a $200 monthly benefit, then the amount the nonemployee spouse will receive is:
$200 x 40% = $80 per month
These calculations can be tricky and confusing, but it is so important to consider in the division of the marital assets and debts. If you have questions about the division of retirement in your case, please schedule a consultation with one of the attorneys by using our contact form. If you are looking to mediate the issues in your case, please see the online scheduling calendar for mediation.
