Prior to ordering the division of an asset, the court must identify whether the asset is subject to equitable distribution. Rothman v. Rothman, 65 N.J. 219, 232 (1974). In general, the court divides only that portion of the asset that was “legally or beneficially acquired” during a marriage. N.J.S.A. 2A:34-23(h). It is well-settled that a pension earned during the marriage is an asset subject to division. Kikkert v. Kikkert, 88 N.J. 4, 5 (1981). Accordingly, pension benefits are subject to equitable distribution insofar as the employee spouse earns the right to receive such benefits through work performed during the marriage. Genovese v. Genovese, 392 N.J. Super. 215, 223 (App. Div. 2007).

The equitable distribution of a pension interest acquired during the marriage is grounded on the principle that “a pension plan [is] a form of deferred compensation for services rendered.” Whitfield v. Whitfield, 222 N.J. Super. 36, 45 (App. Div. 1987). Rather than receiving current income, the monies are deferred until retirement. “The marital portion of a pension is identified from the `perspective of when and how the pension was earned or acquired.’” Sternesky v. Salcie-Sternesky, 396 N.J. Super. 290, 298 (App. Div. 2007) (quoting Whitfield, supra, 222 N.J. Super. at 44). Therefore, pension benefits provided to one party during the marriage are considered to be derived from the “joint efforts of the parties” and “are subject to equitable distribution.” Moore v. Moore, 114 N.J. 147, 154-55 (1989).

Moreover, the right to receive an equitable share of a pension asset is not dependent on whether an employee’s right to benefits has matured upon the filing of a complaint for divorce. Moore, supra, 114 N.J. at 156-57; Sternesky, supra, 396 N.J. Super. at 298. That fact will not extinguish the non-pensioner’s interest in the portion of that asset earned during the marriage. Moore, supra, 114 N.J. at 154-55. In this regard, military pension benefits, where the requisite years of military service have not been completed at the time of divorce, are not exempt and they too are subject to equitable distribution. Kruger v. Kruger, 73 N.J. 464, 467-71 (1977); Whitfield, supra, 222 N.J. Super. at 39.

When a pension interest is directly offset, “the pension benefit is valued as of the date of retirement” then discounted to present value. Menake v. Menake, 348 N.J. Super. 442, 448 (App. Div. 2002). The non-employee spouse offsets a percentage of that discounted value against the value of other marital assets. On the other hand, using the deferred-distribution method provides the non-employee spouse with a percentage of the benefits earned during the marriage, calculated pursuant to a formula, the amount of which cannot be computed until the employee-spouse retires. Claffey v. Claffey, 360 N.J. Super. 240, 255 (App. Div. 2003).

Generally, when using the deferred-distribution method, the calculation of a non-employee’s interest earned during the marriage employs a “coverture fraction.” “The coverture fraction represents the number of years during coverture that the pensioner spouse was a member of the pension plan, divided by the total number of years that the pensioner spouse was a member of that pension plan.” Claffey, supra, 360 N.J. Super. at 256. See also Moore, supra, 114 N.J. at 166. The benefit paid to the non-employee spouse is the designated percentage awarded of the product of the coverture fraction times the total retirement benefit. This result limits a non-employee spouse’s share by the term of the marriage even though the benefit is received upon the employee-spouse’s date of retirement.

Even though applying the fraction to the value of the pension at the time of retirement “necessarily reflect[s], to some degree, [a distribution of] post-divorce work efforts[,]” Menake, supra, 348 N.J. Super. at 454, we have repeatedly concluded that the use of the coverture fraction methodology manifests a fair division of the future benefits between the former spouses. See Risoldi v. Risoldi, 320 N.J. Super. 524, 540 (App. Div.), certif. denied, 161 N.J. 335 (1999); Marx v. Marx, 265 N.J. Super. 418, 425-26 (App. Div. 1993). In most instances, use of the coverture fraction is not at odds with a court’s exercise of equitable authority to effectuate asset division because the use of the “coverture fraction insures that the equitable distribution pot includes only that portion of the working spouse’s labor which constitutes a `shared enterprise.’” Eisenhardt v. Eisenhardt, 325 N.J. Super. 576, 581 (App. Div. 1999). “The longer the employee spouse works, the larger the denominator [of the coverture fraction], thus reducing the non-employee spouse’s percentage share and assuring the employee spouse the benefits of his or her post-divorce labors.” Reinbold v. Reinbold, 311 N.J. Super. 460, 466-67 (App. Div. 1998).

A military retirement benefit is not paid pursuant to a plan, but based on a formula set forth in federal statutes. We briefly review the nature of and methodology used to compute military pensions, which is somewhat unique. McCarty v. McCarty, 453 U.S. 210, 221, 101 S. Ct. 2728, 2735, 69 L. Ed. 2d 589, 599 (1981).

First, unlike most pensions, the plan is non-contributory — the service member makes no contribution toward his or her pension. Second, a service member’s pension rights are not vested until the requisite years of service are reached, noting that a retired officer at all times remains a member of the military, subject to recall to active duty. Id. at 222, 101 S. Ct. at 2736, 69 L. Ed. 2d at 599 . See also 10 U.S.C.A. § 802 (4). Third, the formula used to calculate retired pay benefits considers a military member’s rank pay at retirement and years of service. 10 U.S.C.A. § 12739(a). Specifically, each service member receives points for each day of military service: one point for each day of active military service and two points for each day of reservist duty. 10 U.S.C.A. § 12732(a)(2)(A)(i) and (ii). Additional points accrue based on the completion of certain training, drills and funeral honors duty. The actual member’s benefit is the product of the base pay for the rank achieved at retirement and two-and-one-half percent of the points representing the years of service credited, and may not exceed seventy-five percent of the base pay upon which it is based. 10 U.S.C.A. § 12739(a) and (c).

In Whitfield, supra, the court rejected a requirement of vesting as a prerequisite to the equitable distribution of defendant’s Air Force pension. 222 N.J. Super. at 39.

There are some extraordinary post-judgment pension increases that may be proven to be attributable to post-dissolution efforts of the employee-spouse, and not dependent on the prior joint efforts of the parties during the marriage. In such instances, these sums must be excluded from equitable distribution and the application of the coverture fraction may be insufficient to accomplish this purpose.

When a claim is made to exclude post-dissolution sums, the employee-spouse seeking exclusion bears the burden of proving with calculable precision what portion of the increase in the pension’s value is immune from equitable distribution. See Pacifico, supra, 190 N.J. at 269 (reiterating that “the burden of establishing immunity from distribution of a particular marital asset or portion of an asset rests upon the spouse who asserts it”).

When analyzing assets for purposes of equitable distribution, the focus of our courts must always be “whether the nature of the asset is one that is the result of efforts put forth `during the marriage’ by the spouses jointly[.]” Pascale v. Pascale, 140 N.J. 583, 609 (1995). Every case turns on its own facts and requires a case by case analysis. Painter v. Painter, 65 N.J. 196, 213-214 (1974).

NOTE: My legal and mediation services are offered to clients in Union, Middlesex, Somerset, Essex, Hudson, Bergen, and Morris counties in NJ.

Pension benefits provided to one party during the marriage are considered to be derived from the joint efforts of the parties and are subject to equitable distribution originally appeared on NJ Family Issues on January 27, 2011.

Because of the close family relationship between a husband and a wife at the time of an alleged gift, and because writings exist, indicating the husband’s intention to name his wife as a contingent annuitant beneficiary under an Excess Benefit Plan, see Czoch v. Freeman, 317 N.J. Super. 273, 289 ([App. Div.] 1999), the Court may find that there is a presumption that the husband made an irrevocable inter-vivos gift of the surviving spouse annuity portion of his retirement benefit received pursuant to the Excess Benefit Plan . . . to his wife (now his ex-wife); AND
As a result of the presumption . . . above, the burden of persuasion shifts to the husband to disprove the existence of the inter-vivos gift[.]

NOTE: My legal and mediation services are offered to clients in Union, Middlesex, Somerset, Essex, Hudson, Bergen, and Morris counties in NJ.

Irrevocable inter-vivos gift of the surviving spouse annuity portion of a retirement benefit plan originally appeared on NJ Family Issues on August 11, 2010.

David S. Rich, Esq. advises that under section 401(a)(13) of the Internal Revenue Code (the “IRC”), 26 U.S.C. § 401(a)(13), an employee pension benefit plan, in order to be qualified under the IRC, must provide “that benefits provided under the plan may not be assigned or alienated.” A qualified plan’s anti-alienation provisions are effective to preclude garnishment of a participant’s pension benefits against a judgment creditor.

However, the IRC and the implementing regulations have recognized certain exceptions to the general rule of anti-alienation, including qualified domestic relations orders (“QDROs”), limited and voluntary revocable assignments of benefits by the participant, loans from the plan to the participant secured by his/her vested accrued benefit under the plan, and enforcement of a federal tax levy or of a judgment in favor of the United States resulting from unpaid tax assessments.

Trisha Connors, Esq. adds: Pensions and social security benefits as well as child support are immune from garnishment and levy. A problem frequently arises once these benefits are deposited into a bank account that has the pension/benefit funds and another source of funds such as paychecks or gifts or any other source of income. The bank that is served with a levy withholds the funds and may even turn them over to the creditor and the only way a person can get them back is by motion. The account holder must do a step by step analysis of the ins and outs of the account to prove that the funds levied on were in fact exempt pension/social security benefits and not the non-exempt funds.

To aleviate some of these problems, the debtor should open an account that ONLY receives pension and other exempt benefits.

However, even if the debtor gets an order stating that the funds were improperly levied on, the bank will probably keeps the processing fee it charged FOR EACH LEVY. The bank may refused to refund the fee, stating “the order applies only to the creditor,” not the bank.

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

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Pension and social security benefits, as well as child support, should be immune from garnishment and levy originally appeared on NJ Family Issues on February 25, 2010.

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

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Qualified plans, like 401(k)s and traditional pensions, fall under federal regulations and can be divided between spouses by means of a QDRO originally appeared on NJ Family Issues on February 23, 2010.

NOTE: My Law Office is located at 726 West Saint Georges [W. St. Georges] Avenue (Route 27), Linden, Union County, NJ. Telephone: 908-486-2200

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Information about QDROs originally appeared on NJ Family Issues on February 16, 2010.

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A property settlement agreement (PSA) can create rights in an alternate payee and can satisfy the requirements of a QDRO. Ross v. Ross, 308 N.J. Super. 132, 152-55 (App. Div. 1998).

The “portion of a pension legally or beneficially acquired by either party during marital coverture is subject to equitable distribution.” Claffey v. Claffey, 360 N.J. Super. 240, 255 (App. Div. 2003) (citing Kikkert v. Kikkert, 88 N.J. 4, 5 (1981)). “The Employment Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 to 1461, adopted in 1974, was passed to establish uniform national standards for employee pension plans.” Risoldi v. Risoldi, 320 N.J. Super. 524, 533 (App. Div.), certif. denied, 161 N.J. 335 (1999) (citing 29 U.S.C.A. § 1001(a)). Under ERISA, as originally enacted, “pension plan administrators and trustees of ERISA pension plans were not permitted to comply with state-court orders equitably dividing pension plans among divorcing spouses.” Id. at 532. However, in 1984, the Retirement Equity Act, Pub. L. 98-397, was enacted to create a statutory exemption to the anti-alienation provisions of the Internal Revenue Service (IRS) and ERISA and to require pension plan administrators to honor a “QDRO issued by a court pursuant to state law[.]” Ibid. (citing 29 U.S.C.A. § 1056(d)(3)(A) and (B)).

Essentially, “these changes permitted a direct distribution to the non-pensioner spouse of a QDRO-designated share of the pensioner’s ERISA retirement benefit.” Ibid. In other words, a QDRO “directs the pension plan administrator to distribute, in accordance with the coverture fraction ^[1] , a portion of the periodic pension benefit to the non-pensioner spouse.” Claffey, supra, 360 N.J. Super. at 258.

Matrimonial agreements are basically contractual in nature. Pacifico v. Pacifico, 190 N.J. 258, 265 (2007). “As a general rule, courts should enforce contracts as the parties intended.” Id. at 266 (internal citations omitted). Where the terms of a contract are unambiguous, “the court must enforce it as written.” County of Morris v. Fauver, 153 N.J. 80, 103 (1998).

In this case, plaintiff undertook a contractual obligation to share with defendant approximately fifty percent of the pension benefits he acquired while the parties were married. As the trial court noted, such obligation “was enforceable by the Court as a court order once the judgment of divorce incorporated the property settlement agreement.” Accordingly, the court logically concluded that “[t]he QDRO is just a mechanism so that the pension company can cut two checks[,]” and pay defendant directly.

Plaintiff claimed that defendant’s claim was barred by laches. However, equitable doctrines such as laches “cannot validly be used to sponsor an inequitable result.” Linek v. Korbeil, 333 N.J. Super. 464, 475 (App. Div.), certif. denied, 165 N.J. 676 (2000). In Linek, the court affirmed the lower court’s order awarding to the alternate payee pension benefits accruing for three years, beginning from the month of the defendant’s early retirement. Id. at 467, 471, 475. In that case, the pension administrator failed to make initial payments under a mistaken belief that the plaintiff was not entitled to pension benefits until the defendant reached the age of sixty-five years old. Id. at 467.

See related Blog Post, published in the New Jersey Family Law blog.

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1. “The numerator of this fraction is the total period of time that the employee-spouse participated in the plan during his marriage. The denominator is the total period of time that the employee spouse participated in the plan. The fraction is then applied to post-retirement cost-of-living increases to determine the percentage of those increases that are attributable to the employee spouse’s participation in the pension.” Moore v. Moore, 114 N.J. 147, 166 (1989).

A property settlement agreement can create rights in an alternate payee and can satisfy the requirements of a QDRO originally appeared on NJ Family Issues on September 17, 2009.

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A Military Clarifying Order (MCO), is the military version of a Qualified Domestic Relations Order (QDRO).

In this case, the issue involved a military pension resulting from service in the Army National Guard.

For members retiring from active duty, the formula to be used, as set forth by Defense Finance and Accounting Service (DFAS), is the same formula described in Whitfield v. Whitfield, 222 N.J. Super. 36, 48 (App. Div. 1987).

For members retiring from active duty, the numerator is the time from marriage to separation while the member was performing creditable military service. The numerator is expressed in terms of whole months and must be set forth in the court order. If the numerator is expressed in terms of years or days, DFAS will convert it to months and drop odd days or partial months. The denominator will be supplied by DFAS in terms of whole months of service creditable for retirement eligibility. This results in the formula to calculate the former spouse’s award as a percentage of disposable retired pay. This is not the same mathematical formula, according to DFAS, as employed in the case of members retiring from reserve duty.

[See related Blog Post, published in the New Jersey Family Law blog.]

NOTE: Legal and mediation services are offered to clients in Union, Middlesex, Somerset, Essex, Hudson, Bergen, and Morris counties in NJ.

What is a Military Clarifying Order? originally appeared on NJ Family Issues on July 10, 2009.

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Allegedly, several pilots got “sham” divorces to obtain a pension payout, and now face a federal lawsuit. [SOURCE].

Don’t be too “smart” — you may ruin your life.

[Read the PLAINTIFFS’ ORIGINAL COMPLAINT AND APPLICATION FOR DECLARATORY AND INJUNCTIVE RELIEF]

[See related Blog Post, published in the New York Divorce and Family Law Blog]

Allegedly, several pilots got “sham” divorces to obtain a pension payout, and now they face a federal lawsuit originally appeared on NJ Family Issues on June 16, 2009.

The question here is whether the terms of the limitation on assignment or alienation invalidated the act of a divorced spouse, the designated beneficiary under her ex-husband’s ERISA pension plan, who purported to waive her entitlement by a federal common law waiver embodied in a divorce decree that was not a QDRO.

The Court held that such a waiver is not rendered invalid by the text of the antialienation provision, but that the plan administrator properly disregarded the waiver owing to its conflict with the designation made by the former husband in accordance with plan documents.

NOTE: My legal services include family law, divorce, child support, litigation, arbitration, mediation, child custody and visitation, alimony, equitable distribution, separation agreements, palimony, PSA, property settlement agreement, premarital and prenuptial agreements, midmarriage and marital agreements.

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When, as part of a divorce, a spouse waives her interest in the benefits of an ERISA pension plan, a plan administrator may properly distributed benefits to a deceased participant’s ex-spouse if she was the only designated beneficiary originally appeared on NJ Family Issues on January 26, 2009.

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A QDRO is used to maintain the tax-advantaged position of retirement accounts. Ross v. Ross, 308 N.J. Super. 132, 150-51 (App. Div. 1998).

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More information:

1. FAQs About Qualified Domestic Relations Orders, published by the U.S. Department of Labor
2. Decisions Affecting Divorce – Splitting of Retirement Benefits, published by Clifton G. Lamb, Jr., CPA
3. QDRO FAQs, published by Pension Appraisers, Inc.
4. QDRO TUTORIAL, published by Troyan, Inc.

QDRO is used to maintain the tax-advantaged position of retirement accounts originally appeared on NJ Family Issues on December 30, 2008.