Social Security and Retirement Benefits in California Divorce Cases – In re Marriage of Peterson

Retirement benefits are often among the most significant assets in play when a couple decides to divorce. The question of how to divide those benefits can be a tricky one that implicates both state and federal laws. As California’s Second District Court of Appeals recently explained, state law in California generally dictates that retirement benefits are community property to be split evenly between spouses upon divorce. Federal law, however, mandates that Social Security retirement benefits remain the separate property of the spouse who contributes to the system during the course of the marriage.

retired-and-relaxing-1565780Husband and Wife separated in February 2010, following roughly 16 years of marriage. Husband, who worked as an attorney, contributed to Social Security through deductions from his paychecks during the course of the marriage. Wife, who worked for a state government entity as an employee of local district attorney’s office, participated in a defined-benefit retirement plan (“LACERA”), in which her employer contributed the full amount. The total retirement benefits available to Wife under her LACERA plan were based on the number of years she worked, her age, and her compensation. The plan also barred covered employees from contributing to or receiving Social Security for the time they served in the district attorney’s office, according to the Court.

Husband and Wife eventually entered into a marital settlement agreement, in which they resolved a number of issues related to the divorce. Among other things, the couple agreed that Husband’s Social Security benefits – valued at $228,000 – were separate property and that Wife’s LACERA benefits – valued at about $215,000 – were community property. Wife later asked a trial court to divide the couple’s property in a way that accounted for this disparity. She said the court should either require Husband to reimburse the community for the Social Security contributions and then divide them equally, or allocate her all of the LACERA benefits to equalize the retirement assets. The trial judge declined, finding that federal law prevented the court from considering Husband’s Social Security benefits in dividing the couple’s property.

The Second District agreed on appeal. It explained that California law required the retirement benefits be treated as community property and that community property must be divided evenly between divorcing spouses. The Court also said that federal law made clear that Social Security benefits are separate property and barred the trial court from offsetting those benefits in dividing the community property. “We sympathize with [Wife]’s situation, and recognize that the result of California’s strict policies on the division of property, intended to protect spouses, did not produce an equitable result in the situation before us,” the Court said. “But it is not our role to change or defy California law.” Instead, the Court noted that the state legislature could draft a new law, similar to one in place in Louisiana. That law directs a court to assign a portion of the community property to one spouse when the other spouse’s retirement money is deemed separate property by law.

This is just one of many reasons to stay out of court and resolve these issues in accordance with your own values and sense of fairness. Couples in mediated and Collaborative divorces could easily fashion an agreement in a situation like this that would produce a more equitable outcome.

If you’re considering a divorce in California or facing community property issues after a divorce, it’s imperative that you seek the advice and counsel of an experienced family law attorney. With offices throughout the Bay Area, California divorce lawyer and mediator Lorna Jaynes provides innovative legal tools to resolve family law disputes without the bitterness and acrimony engendered by the adversarial process.

Related blog posts:

Untangling Shared Business Interests in California Divorce Cases – In re Marriage of Greaux and Mermin

The Role of Retirement Benefits in California Divorce Cases – In re Marriage of Green

Bankruptcy, Divorce and Community Property – In re Marriage of Rynda