One of the major assets a divorcing couple usually has, other than real estate property, are retirement benefits such as company pensions, 401k, and other deferred compensation. The problem in determining how much community property interest in the retirement benefit arises when the employee spouse worked at a particular employer longer than the period of the marriage. The question that arises is how do you apportion the community property interest? How much of it is the employee spouses’s separate property?
Retirement benefits in a divorce case are usually characterized as community property to the extent that the work done to earn them is performed between the date of marriage and the date of separation. Marriage of Brown.The community interest is not affected by whether or not the rights are vested or matured. To the extent that the work was performed before the date of marriage or after the date of separation, the benefits are the employee spouse’s separate property.
The apportionment of retirement benefits in a divorce case must be reasonable and fairly represent the contributions of the respective estates. The most common method of apportioning retirement benefits between the community and separate property is the “time rule.” This method apportions community property by the ratio of the time worked by the employee spouse between the date of marriage and the date of separation bears to the entire period of employment. The remaining portions are the employees separate property. Although this rule is frequently used, the trial court has discretion to modify or to use other methods that are more appropriate for the circumstances and unique nature of the retirement plan.
Where an employee spouse is single throughout employment and marries only after retirement, pension or other deferred compensation is separate property even though received during the marriage. An exception to apportionment of a non-employee spouse’s right to share in a community pension interest are certain preexisting obligations. A non-employee spouse’s right to share in a community pension interest may be subordinate to other liabilities assertable against that interest such as where the benefits are already committed to a third party under a preexisting legal obligation. Situations like this arise in instances such as obligations arising out of prior divorce cases or a spouse’s prior tax deficiency liability enforceable against the retirement benefit through tax levy.
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Attorney Kenneth Ursua Reyes was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail [email protected]; Website kenreyeslaw.com.
