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.
Husband 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.