A. DETERMINING COMMUNITY AND SEPARATE PROPERTY INTERESTS
Retirement benefits are property that is “acquired” for purposes of characterization, over a period of time, rather than at a discrete time. To the extent, then, that the work done to earn them is performed between the date of marriage and the date of separation, the benefits are community property.
On the contrary, to the extent that the work is performed before the date of marriage or after the date of separation, the benefits are the employee-spouse’s separate property. The community interest is unaffected by whether or not the rights are “vested” or “matured.” Marriage of Brown, (1975) 15 C3d 838.
A “vested” right is one that survives the employee’s discharge or voluntary termination and a “matured” right is an unconditional right to retire and obtain immediate payment of benefits. Marriage of Brown, 15 C3d at 842.
The apportionment of retirement benefits between the community and separate property estates must be reasonable and fairly representative of the relative contributions of the respective estates.
B. DEFINED BENEFIT PLAN
A defined benefit plan is one in which an employee will be entitled on retirement to a fixed monthly benefit during the remainder of his or her life, with the amount of the benefit usually calculated based on a formula multiplying years of service time the employee’s salary over a certain period of time.
A defined benefit plan is one in which the benefits may be ascertained by reference to factors such as the employee’s age at retirement, years of service at retirement and highest income level achieved.
The goal in valuing a defined benefit plan is to ascertain the present value of pension benefits to be received in the future, for which the actuarial method has traditionally been employed. Expert witness testimony usually depends on the expert’s assumptions about interest, mortality, and vesting. Other assumptions may also be important, for example, some dissolution retirement experts consider future salary increases in valuing pension benefits, but others do not.
C. APPLICATION OF THE “TIME RULE”
The most common approach to divide retirement benefits is through the Time Rule. Under this rule, the benefits are community property in the ratio that the time worked between the date of marriage and date of separation bears to the entire time of employment. The remaining portion of the benefits (i.e. the ratio that the time worked before the date of marriage or after the date of separation bears to the entire time of employment) is the employee’s separate property.
Even though the Time Rule is most frequently used for apportioning retirement benefits between community property and separate property, the basis for apportionment is a matter for the trial court’s discretion.
D. DEFINED CONTRIBUTION PLAN
A defined contribution plan is one in which contributions are paid into an account by the employer, the employee or both. For these plans, application of the time rule is not required. Rather, the characterization as community or separate property is analyzed similarly to a bank account, stock portfolio, or other investment account.