UPDATED: MAY 12, 2020
Article by Daniel A. Levy, Esq.
When I represent a client during a divorce case I am frequently asked about dividing assets, which is known as “equitable distribution.” Basically, that’s a fancy word for the court dividing the assets in a way that is fair. It sometimes means that property is split 50/50, but not always. Especially with clients that are more advanced in their careers, I am asked about social security benefits, pensions, and/or retirement accounts, and how that would be divided during a divorce.
Retirement assets are considered as assets subject to equitable distribution between spouses during a divorce. New Jersey courts have found Defined Benefit Plans such as pensions to be subject to equitable distribution. Often, federal government pensions such as military retirement pay are subject to equitable distribution.
It is very routine for a court to divide a pension plan or retirement account. This is done in a similar way that other marital assets are divided, but with a small twist. As a court of equity, the judge in a divorce case has to ask what is fair – in other words, what percentage of a pension should the other spouse receive? This is sometimes an easy question to answer, but not always. For very short marriages, the judge could easily rule that the other spouse is not entitled to any percentage. For a long term marriage, the judge would normally say that the value of the plan should be split 50/50. For medium-length marriages, it may be a different percentage. In any event, here is the twist: Whatever that percentage is, the receiving spouse is only entitled to that percentage as of the date that the complaint for divorce was filed. And if there were significant contributions before the marriage started, those contributions may not be subject to equitable distribution.
A lay person cannot calculate the value of the account; you would need an expert to make that calculation. Essentially, they would figure out the value that the receiving spouse is entitled to and also figure out what the receiving spouse should receive either today as a lump sum, or in the future when the paying spouse retires. This would then be incorporated into something that is called a Qualified Domestic Relations Order (“QDRO”, pronounced ‘quadro’). Once the judge signs the QDRO, it is delivered to the manager of the retirement plan.
With Social Security benefits, things are very different. If you get divorced will you receive a portion of your spouses social security benefits? The short answer is ‘maybe.’ The reason for this is that Federal law preempts New Jersey State law and the Federal law makes it very clear that Social Security benefits cannot be transferred, assigned, garnished, or taken from the beneficiary in any way. See 42 USC 407. New Jersey courts have therefore declined to consider Social Security benefits part of the marital estate that is subject to equitable distribution. Therefore, if you are getting divorced you cannot get a QDRO to divide the Social Security benefits like you can with other retirement benefits.
However, a spouse can collect social security benefits – even if they never worked – based upon their ex-spouse’s income, but there are restrictions. You can only do this if you are unmarried, 62 or older, and your ex-spouse’s benefits are greater than the amount that you would be entitled to. In such a case, you could collect 1/2 of your ex-spouse’s benefit. But you would lose this benefit if you re-marry.
There is very little caselaw in New Jersey about this topic. Recently, New Jersey’s alimony laws changed and encouraged courts to look at a paying spouse’s full income picture at the time of retirement. Will Social Security benefits be taken into account when modifying alimony at retirement? Will the availability of Social Security benefits for one spouse and not the other factor into other equitable distribution analyses? There are many questions, and unfortunately, not many answers.