Whether Florida ex-spouses are entitled to benefit from salary and cost-of-living increases to their ex’s pension post-filing
One of the most important decisions in divorce is the division of marital property – and one of the more complex parts of that decision concerns pension division.
Marital v. separate property
In a divorce, the judge must divide equitably (fairly) all marital property, defined as all assets that come into the marriage either through the efforts of one or both spouses. Equitable division does not always mean dividing every asset down the middle.
Separate property – that which either spouse owned prior to the marriage or that they receive as an individual as a gift or inheritance – remains the property of the individual spouse who owns it.
Pensions are hybrids
Florida courts have explained that a pension is a little tricky to divide, especially because it is an asset that increases in value over time until it is paid out later at retirement and because it continues to fluctuate in value both outside and inside the marriage. Basically, it looks like this, requiring a little math and actuarial work to assign actual valuation at any point:
- Value of a pension before marriage is a separate asset of the pension owner
- Growth in value during marriage is part of marital property
- Growth in value after divorce is separate property of the owner
The judge in divorce must decide whether there is marital property interest in the pension of either party. If the judge decides there is and to give part of the marital portion to the non-owning spouse, they usually do it one of two ways:
- Figure out the present value of the pension (not what it will be worth when it starts paying out in the future after the divorce) and give the other spouse a lump-sum payment now representing half or another portion of the marital value.
- Give the other spouse a portion of future pension payouts at the owning spouse’s retirement – and it is here that an important issue arises.
Date of pension value to use in calculating other spouse’s share
If the non-owning spouse gets a portion of payments at future payout, is the portion calculated by dividing the actual, future dollar amount paid out – which would include value added to the pension in the years between the divorce and the retirement – or should the division apply to the value a payment would have been at the time of divorce?
Florida courts split on this issue until the Florida Supreme Court settled it. The Supreme Court said that the value subject to division is what it is at the time of divorce. Contributions and other growth in value after divorce are the separate property of the owner, so dividing the payment amount at retirement would in effect transfer nonmarital property to the other spouse.
A common way to divide pension payments after retirement is to do a 50-50 split (but it could be a different percentage). However, because the amount to be split is calculated as of the date of divorce (or separation or filing), a simplified example would be:
- Value of the entire monthly payment at divorce if retirement happened then: $200
- Value of the entire monthly payment at retirement after divorce is over: $400
- Half of the value at divorce (the marital part): $100
- Division of $400 monthly payment at retirement: $100 to non-owner (who gets half of value at divorce, not at retirement) and $300 to owner
(The formula would be more complex if part of the pension was separate property because of spousal ownership before marriage.)
Take out the unknown by negotiating an MSA
It is often beneficial to negotiate a marital settlement agreement so the parties can decide themselves how they want to divide pension benefits. They may agree to change these valuation rules if they agree – but if a judge decides, the Florida Supreme Court has said, “Valuation of retirement benefits is fact-intensive and varies depending upon the plan, and the trial judge must determine the equitable valuation with the limitation being the valuation is not to include post-marriage contribution.”
A lawyer can answer questions about dividing pension and other retirement benefits.