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Community Property and Equitable Division, Part Two
Jan L. Warner & Jan Collins

This is the second of three columns dealing with community property and equitable division.

Like community property states, equitable division jurisdictions do not require that assets be divided so that each party gets a part of each asset. Instead, most courts will fashion the division so that each spouse will receive the value awarded by the court.

Sometimes, there are disputes between spouses over whether an asset is community, marital, or separate and whether the value of a community or marital asset is appropriate. Since the categorization and valuation of various assets can be problematical, if the spouses do not agree, the courts will listen to the evidence and make an independent determination. Oftentimes, it is necessary for each side to trace the acquisition of assets in order to prove whether it is subject to division or not. Asset tracing can become very complicated and generally requires the assistance of experts.

The division of pension and employment benefit rights can be tricky and are often the subject of disputes. Generally speaking, since a spouse acquires an interest a spouse’s pension, profit-sharing, retirement, or other employee benefit plans during the marriage, these assets become community property or, in equitable division states, marital property and, after valuation, are subject to division when the relationship terminates.

When it comes to pension plans, courts have the power to either (1) award the pension plan to the spouse based on its present value in a which is determined by an expert such as an actuary, CPA, or economist or (2) reserve jurisdiction so that when the benefits are in “pay status,” each spouse will be awarded a proportionate share.

Many courts tend to reserve jurisdiction so that when the employee-spouse retires, the other spouse receives a fixed percentage of each pension check. This percentage is determined by dividing the number of years the spouses lived together as husband and wife by the total number of years the employed spouse participated in the plan.

For example: If the employed spouse contributed to the pension plan for 25 years and lived with the non-employed spouse for five of those years, the by dividing five years by 25 years, the portion that would be community or marital property would be 20%, or one fifth. Therefore, in community property states, the non-employed spouse would receive one half of 20% or 10% of each check. In equitable division states, the non-employed spouse would receive the percentage of the 20% allocated by the court -- which could be more or less than 10%.

Where the court reserves jurisdiction, the non-employed spouse can elect to either receive his/her share of the pension benefits at the earliest time that the employed spouse could retire. In other words, if the employed spouse decides not to retire, he/she could still be obligated to pay the non-employed spouse the amount that spouse would have received had the employed spouse retired.

An example: If the employed spouse is eligible for early retirement at age 57 but he chooses not to retire at that time, his former spouse can require immediate payment of the amount he/she would have received had the employed spouse retired. The drawback to the non-employed spouse is that if this election is made, there will be no cost of living increases paid after that date.

In order to distribute qualified funds from pension and profit sharing accounts, Congress established what are known as Qualified Domestic Relations Orders or QDRO’s under The Federal Retirement Equity Act of 1984. This federal act requires that in order to require the employer to comply with a court order that deals with an employed spouse’s retirement plan, there must be specific language in the court order.

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