Regardless of how long you have been married, divorce is never easy. One of the more challenging aspects of a divorce is property division. Community property laws in Louisiana, complicate property division even further. When pension plans and other retirement benefits are part of an estate, it is important to understand how the community property statutes apply.
Retirement Benefits Prior to Marriage
In some cases, retirement benefits, particularly those related to work-based accounts may have been in place prior to a marriage. In these cases, the benefits earned prior to the marriage would be considered sole property of the person whom the account was set up to benefit. These benefits are not divided between spouses upon division of assets following a divorce. The same rule would apply for any benefits earned after the couple was legally separated.
Retirement Benefits Accrued During the Marriage
Because of the community property laws in Louisiana, any money the couple placed into retirement or pension plans during the marriage is considered owned equally by both spouses. This means these funds will be distributed evenly between the spouses as part of the property division. One complicating factor which you may encounter is the vesting schedule of the pension plan.
Vesting plans complicate division of retirement plans. If an employee must remain with the company for a specified period of time before their retirement plan is fully vested, it can be difficult to determine the value assigned to the plan. In many cases, the property division will include a caveat that these assets would be distributed at a later date, once vesting has taken place.
Spouses often believe if the funds in a company pension plan were not put there by them, rather funded by their employer, are not divisible as part of property division. This is not accurate because the funds are for the benefit of the spouse and therefore fall into the category of community property.
The Time Rule Formula
In legal terms, the Time Rule Formula is called the Coverture Fraction. This applies to pension funds which may have been partially earned at the time a couple was married and continued throughout the marriage. The calculation is based on the number of days a person was married and the calculation of the community property is established from here. In theory, it looks like this:
An employee began earning a pension on Day 1, got married on Day 700, and terminated employment on Day 985, the total earnings period (denominator) would be 985 days, the pre-marital portion would be 700 days, and the marital portion would be 285 days. In this case, the non-pension participant would be entitled to one-half of the pension plan accrued during the 285 days of employment during the marriage.
Pension and retirement plans are complicated and there is no easy way to determine how the court will divide the property while adhering to the community property statutes in Louisiana. Your best option is to discuss your knowledge of your spouse’s retirement plans with your attorney.
Pre and Post-Nuptial Agreements and Pension Plans
Another possible scenario when it pertains to pensions and retirement accounts is agreements between the spouses. These may be in the form of a pre or post-nuptial agreement or may be as part of a separation agreement reached after the couple stops living together. These agreements would be upheld by the court and would be unlikely to be subjected to modification of any type if the agreements are found to be valid.
Signing Agreements When Pension and Retirement Benefits are Involved
When you are considering a legal separation or divorce in Louisiana and you do not have a pre or post-nuptial agreement you may consider drafting a legal document regarding the division of property. Before you take this step, you should seek guidance from an attorney who has experience in handling property division cases. Retirement plans and pension plans are complicated and because they are often vested in the stock market, the value can swing dramatically.
As part of your divorce, the court will typically award one-half of all retirement benefits which are accrued during the marriage equally between the spouses. They will review plans which are held by each spouse and a Qualified Domestic Relations Order (QDRO) will be issued by the courts. These orders are in full force and effect and will have to be presented to the plan administrator to allow them to disburse funds from the retirement plan.
Inherited Pension Plans and Retirement Benefits
While assets accrued during a marriage are considered community property, there are some things which will be assigned as ‘sole property’ during the marriage. One example of this is an inherited pension or retirement plan. An example of this would be if your spouse was the beneficiary of a plan previously held by a parent or sibling. In these cases, upon the death of the account owner, your spouse would be entitled to the proceeds from the plan. Any funds distributed to your spouse under this type of scenario would be considered sole property and not subject to division under the community property statutes.
When a Divorce Involves High Value Estates
While retirement benefits may be partially considered sole property as well as joint property it is important to remember that the court may award other property of similar value to one spouse rather than change the terms of a retirement plan. An example of this would be if the couple’s home has a similar value to a pension plan, one spouse could be awarded the home and one could be awarded the retirement plan as part of the property division. The more complex your finances, the more likely this is to occur. You should always speak with an attorney who has experience handling high value marital estates before you enter into any type of property division agreement with your spouse or before the property division is ordered by the court.
If you are currently seeking a divorce, or your spouse has informed you they are considering filing for divorce, you should seek immediate legal assistance. contact Brown Weimer LLC at 504-561-8700 for a free consultation to ensure your rights are protected and get your answers to commonly asked questions about retirement benefits during a Louisiana divorce.