One of the larger assets in many divorce cases is one, or both, spouse's pension benefits. Pensions, like all other assets, must be divided equitably between the parties during the divorce. If a portion of such pension was acquired prior to the marriage, the court must determine the marital portion of the pension prior to dividing the same. In the recent case of In re the Marriage of Sawicki, the court discussed how a court should calculate the value of the marital portion of a pension plan.
In Sawicki, the parties had been married for 17 years at the time of their divorce. The husband was a 52 year-old construction worker who had retired because of a disability. The wife was a 47 year-old housewife.
The husband had contributed to his pension plan for 27 years prior to his retirement, with the first 13 years of contributions being prior to his marriage. During the 27 years, the husband had earned 39.65 pension credits, with 15.25 of those credits being earned during the first 13 years of contributions. Based upon the 39.65 credits, the husband would have received a payment of $3,702.35 per month. However, prior to the filing of the divorce, the husband elected a 50 percent joint and survivor annuity for the wife which reduced the pension payment to $2,795.27 per month.
During the trial, the wife presented the testimony of an accountant that 87.6% of the husband's pension should be considered marital property. The basis for the accountant's opinion was "as earnings go up, the amount of contributions to the fund and contributions to the union-negotiated plan normally increase, so that there would have been more benefit accrued after the date of marriage than prior." When the husband failed to present any testimony regarding the value of the marital portion of his pension, the court essentially agreed with the wife’s accountant and held the marital portion to be 87.5% (not 87.6%) of the total pension and awarded the wife one half thereof, which, at the time of the divorce was $1,298.06 per month.
On appeal, the husband asserted the court erred in finding that 87.5% of the pension was marital property because the court failed to apply the appropriate formula for determining the same. The husband argued the trial court should have applied the "proportionality rule" in determining the marital portion of the pension. Under the proportionality rule, the marital portion of a pension is determined by taking the present value of the pension multiplied by a fraction whose numerator is the number of years of the marriage during which benefits were accumulated, and whose denominator is the total number of years during which the benefits were accumulated prior to divorce.
The proportionality rule is the appropriate method for determining the marital portion of a pension because, contrary to the testimony of the wife's accountant in this case, contributions in the earlier years were more valuable than contributions in the later years since the value of money in the earlier years is worth more than in the later years. Thus, the case was remanded to the trial court to properly value the marital portion of the pension.
If you are considering a divorce, and have a question on how the marital portion of a pension plan will be calculated, please telephone a member of the firm.