Determining the Nonmarital Portion of Pensions and Retirement Benefits

This article discusses complex issues with retirement plans, specifically defined contribution plans like 401(k) and profit sharing plans. The main issue is determining the nonmarital portion of these plans in a divorce. There are two methods used for this, but both violate Florida Statutes. Using tracing investments as a method doesn’t work because the participant doesn’t actually own the investments, the plan trust does. The other method, using service fractions, also has issues. So, determining the nonmarital portion of a retirement plan in a divorce can be complicated. Mutual funds have been determining interests for a long time, and they accurately figure out how much each shareholder is entitled to, even though everyone shares the same fund. When it comes to figuring out what portion of an asset is nonmarital, it’s not necessary unless both spouses have equal control over the asset and there’s a question of whether one of them gave it as a gift.

The problem with using a service fraction to figure out the nonmarital portion is that it assumes the asset grows at the same rate every year, which isn’t true. For example, some years, more money might be added to a retirement plan, while in other years, nothing is added. The amount of money added doesn’t necessarily have anything to do with how much the person earned that year. And sometimes, the investment returns might be really good one year and really bad the next. So, using a service fraction isn’t a good idea. The only accurate way to figure out the portion of a retirement account that belongs to one spouse before marriage is to calculate the account balance on the wedding day, plus any money earned on investments. This method is rarely used because it’s complicated and expensive, but it’s important to avoid big mistakes. The nonmarital part of the account is mixed with money earned during marriage, which makes it tricky to separate. One way to figure it out is to use the dollar-weighted method, which is also used by economists and investment firms. Another issue to consider is how to divide pension money after a court case called Boyett. The important thing to remember is that legal cases can affect how property is divided in a divorce. The bright line theory and the marital foundation theory are two ways to figure out how much money someone earns during a marriage for the purpose of dividing it in a divorce. The bright line theory only looks at the money earned from the date of marriage to the cutoff date, without considering any discounts. The marital foundation theory looks at all the money earned before and during the marriage, and gives equal weight to each year’s earnings. The Florida Supreme Court says that the bright line theory is the one to use. The bright line theory says that when calculating benefits using a salary, we should only consider the money earned during the marriage. This is because the court ruled that earning a higher salary after the cutoff date is not part of the marital property. Using a service fraction to calculate benefits should be rare, and only used when it’s impossible to figure out how much of the benefit was earned before the marriage. It’s not fair to penalize someone for not being able to prove how much of their benefit is nonmarital if the information isn’t available. Most of the time, the bright line theory should be used to make sure the nonemployee spouse is treated fairly. When a retirement plan pays disability benefits, they are often automatically classified as nonmarital property without considering if this is correct. The difference between retirement and disability benefits is that retirement benefits have specific rules for when and how much is earned, while disability benefits do not have these rules. Additionally, retirement benefits vest and cannot be reduced by the employer, but disability benefits do not vest. This means that some disability benefits may actually be considered marital property, even though they are paid out due to a disability. Disability benefits are paid when someone gets permanently disabled and can’t work anymore. Many retirement plans also pay disability benefits if someone becomes permanently disabled. These benefits are funded by insurance or employer contributions. The part of the benefit that replaces the person’s wages before they retired is separate from the disability benefit. This part is called the Weisfeld component, and it may be considered marital property if the disability occurred during the marriage. Any extra benefits paid before the normal retirement age are considered enhanced disability benefits and are not subject to fair distribution. Executive stock options are a type of compensation that allows an employee to buy company stock at a lower price. In Florida, there is a legal debate about whether these options are considered marital or nonmarital property in the event of a divorce. A court case called Jensen v. Jensen in 2002 found that stock options awarded as part of yearly compensation can be considered as payment for past service, especially if they vest on disability or death. This means that they may be considered marital property and subject to division in a divorce. When a company is bought or merged with another company, the terms of executive stock options and other benefits can change. The intent behind these benefits, whether they are for past or future service, is important in divorce cases. In some court rulings, the employer’s intent is determined by the testimony of a company officer, which may not be unbiased. Expert witness testimony and the employer’s published information should be used instead. If employee rights were determined solely by the employer’s testimony, employees would have a hard time enforcing their rights. DROP is a retirement option that allows employees to keep working past their retirement date without losing their retirement benefits. It’s like getting an extra paycheck for working a few extra years. However, in order to get these benefits, the employee has to actually retire at the end of the DROP period. Recent decisions about DROP benefits don’t take into account that DROP is a separate plan from regular retirement benefits. It works differently and requires the employee to keep working in order to qualify for the benefits. So, it’s not the same as the regular retirement plan. Overall, DROP is a way for employees to keep working and still receive some retirement benefits, but it’s not the same as just retiring and getting the benefits without continuing to work. In summary, it is not appropriate to determine the nonmarital portion of a retirement plan by tracing investments or using a service fraction. When it comes to defined benefit plans and disability retirement benefits, the impact of certain rulings has been overlooked. Additionally, stock options and executive benefits may be considered marital property and need to be carefully evaluated. It is important to understand the intent behind these benefits and how they vest in order to determine their marital status. These are cases and legal professionals in Florida who specialize in family law. They are experts in dealing with issues like divorce, child custody, and retirement benefits. They are dedicated to serving the public and improving the legal system.

Source: https://www.floridabar.org/the-florida-bar-journal/determining-the-nonmarital-portion-of-pensions-and-retirement-benefits/