In Florida, a law says that municipal pensions and benefits are exempt from taxes and cannot be divided through a court order (QDRO). Courts have said that the only way for a nonparticipant spouse to get their share of a pension is by asking the participant spouse to make direct payments. This can cause problems and isn’t very fair. In 1974, the Employee Retirement Income Security Act (ERISA) was created to protect retirement plan participants by preventing their benefits from being taken away. However, in family law cases, a court order called a QDRO can allow a person to receive a portion of their spouse’s retirement benefits. This makes it easier to divide the benefits during a divorce without needing the participation of the spouse. Government pension plans are not required to accept QDROs, so it can be difficult for a former spouse to get their share of the benefits. Municipal pension plans are not as common as other retirement plans, but they are still important in family law cases. In these cases, the parties can choose to divide the pension plans or value them and offset them against other assets. The first option allows for different ways to divide the plan, while the second option involves calculating the current value of the plan and offsetting it against other assets. The choice between the two options will depend on the parties’ financial situations and the assets they have. If the parties are financially equal, they may choose to walk away from the other party’s assets, but if one party has more retirement assets, it may be advisable to divide them so that both parties have a fair share of liquid assets and retirement plans. In some cases, it can be tricky to split up retirement money in a divorce. Let’s say a husband and wife are getting a divorce and they have a house, some cash, cars, and the husband’s pension. The pension may not pay out for a while, so it’s harder to split up. The law says the assets should be divided equally, but the pension might not be counted the same way as other assets. This can lead to unfair outcomes, and it’s especially complicated if the pension is from a government job. This makes things difficult for the court and the people getting divorced. If a couple is getting divorced and one of them has a pension, they might have to figure out how to split the pension money. If they can’t offset the money against other assets, they might decide to split the pension money directly, with one person paying the other every month. This can cause tax issues for the person receiving the money and make it harder for the other person to actually make the payments. They might also try to reclassify the payment as support instead of property, which could cause other problems, like not getting cost-of-living adjustments. If they can’t figure out a way to split the pension money, the nonparticipant spouse will have to rely on the other person to make the payments and keep exchanging information about the pension over the years. When property is transferred between spouses in a divorce, it is generally not taxed. However, money received from a retirement plan is taxable. This means that if a municipal pension does not allow for income to be assigned to a former spouse, the participant in the plan will have to pay taxes on the money they receive. This can affect how the retirement benefits are divided between the parties. Even if the parties agree to adjust for the taxes, the money will still be taxed at a higher rate since it is being received by one person instead of two. This can increase the tax liability for both parties. Many states have laws that protect pensions from creditors, but some states have exceptions for dividing pensions in a divorce. For example, Arizona allows a former spouse to receive a share of a pension because they are considered a co-owner of the property under the stateâs community property laws. Other states, like Connecticut, Illinois, and Michigan, also have laws that allow former spouses to receive a share of a pension in a divorce, despite the anti-alienation provisions. Municipal pensions in Florida are not subject to federal laws that allow for direct payment to a former spouse in a divorce. This makes dividing these pensions in a divorce more complicated and may require the use of a different type of court order. Until this changes, lawyers need to be careful when dealing with these cases to get the best outcome for their clients. This article talks about laws regarding the division of retirement accounts in divorce cases. It mentions specific court cases and IRS codes related to this issue. The author is a lawyer who specializes in this area and is licensed to practice law in several states. This article was submitted by the Family Law Section.
Source: https://www.floridabar.org/the-florida-bar-journal/recurring-issues-with-floridas-municipal-pension-plans-in-family-law-cases/
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