How Pensions Are Split in a Massachusetts Divorce
Pensions represent one of the most valuable and complex assets to divide in a Massachusetts divorce. Unlike more tangible assets such as homes or vehicles, pensions involve future benefits that may not be accessible for years or even decades. This article explores the legal framework, valuation methods, and practical considerations for dividing pension benefits in a Massachusetts divorce.
Massachusetts’ Approach to Pension Division
Massachusetts law explicitly recognizes pension benefits as marital property subject to division in divorce. Under Massachusetts General Laws Chapter 208, Section 34, the court may assign “all vested and nonvested benefits, rights and funds accrued during the marriage,” including “retirement benefits, military retirement benefits if qualified under and to the extent provided by federal law, pension, profit-sharing, annuity, deferred compensation and insurance.”
Unlike some states that follow a strict “separate property” approach, Massachusetts considers all property—regardless of when or how it was acquired—to be part of the divisible marital estate. This means that even pension benefits earned before the marriage or after separation can potentially be divided, though the timing of acquisition may influence how the court divides them.
What is a Pension
Defined Contribution Plans
A pension is essentially a defined benefit retirement plan. An employer, commonly a government or labor union, promises a certain monthly retirement payment to an employee. Pensions used to be commonplace in the private sector. However, as corporations have prioritized increased executive compensation over employee benefits, private sector pensions have essentially disappeared.
Defined benefit plans, including pensions, which promise a specific monthly benefit at retirement based on factors like salary history and years of service, present more complex valuation challenges. These plans do not maintain individual accounts, making their present value more difficult to determine.
For defined benefit plans, an actuarial calculation is typically necessary to determine the present value of future benefits. This calculation considers factors such as the employee’s life expectancy, retirement age, and the time value of money.
Methods of Pension Division
Massachusetts courts generally employ two primary methods for dividing pension benefits:
Present Value Method
The Supreme Judicial Court has declared that the preferred approach for equitable division of pension benefits is to assign a percentage of the present value of future pension benefits when sufficient assets are available at the time of divorce. This approach, endorsed in Dewan v. Dewan (1987), provides an immediate settlement of the pension distribution issue and avoids continued entanglement between the parties.
Under this method, the court:
- Determines the present value of the pension
- Decides what percentage of that value belongs to each spouse
- Awards the non-employee spouse other marital assets of equivalent value to offset their share of the pension
This approach allows the employee spouse to retain their entire pension while the non-employee spouse receives other assets of comparable value.
Deferred Distribution Method (“If and When” Approach)
When a present assignment would create practical difficulties—such as when there are insufficient assets available to offset the pension’s value—judges have discretion to award a percentage of the pension benefits on an “if and when received” basis.
Under this approach, the non-employee spouse receives their share of each pension payment as it is paid to the employee spouse after retirement. This method is implemented through a court order that directs the pension plan administrator to pay a portion of each benefit payment directly to the former spouse.
While this approach ensures the non-employee spouse receives their share of the pension, it has drawbacks. As noted by the Supreme Judicial Court, it “may place the employee spouse in the position of deciding when the benefits are to commence, as a result of that spouse’s decision to retire.” Additionally, it requires the former spouses to maintain a financial relationship long after the divorce is finalized.
The Coverture Fraction
In cases where pension benefits were earned both during and outside the marriage, Massachusetts courts often apply what’s known as the “coverture fraction” to determine the marital portion of the pension. This approach was adopted in Dewan v. Dewan (1983) and helps ensure that the division is equitable.
The coverture fraction typically consists of:
- Numerator: The length of time the employee participated in the pension plan during the marriage
- Denominator: The total time the employee participated in the pension plan
The resulting fraction is then applied to the total benefit to determine the marital portion subject to division.
Special Considerations for Different Types of Pensions
Massachusetts Public Employee Pensions
Massachusetts public employee pensions, governed by General Laws Chapter 32, Section 19, present unique challenges. Following the Supreme Judicial Court’s decisions in Contributory Retirement Board of Arlington v. Mangiacotti (1989) and Early v. Early (1992), it is clear that Massachusetts public employee pensions can be divided by court order.
However, these pensions cannot be divided using standard QDROs, which apply only to private pension plans qualified under the Internal Revenue Code. Instead, they require specialized orders often referred to as “Mangiacotti orders.”
These orders have limitations, particularly regarding survivor benefits. Under Section 12 of Chapter 32, only a spouse or “former spouse who has not remarried” is eligible for survivor benefits. This means that if either party remarries, the former spouse may lose eligibility for survivor benefits despite provisions in the court order.
Military Pensions
Military pensions can be divided in a Massachusetts divorce, but only to the extent provided by federal law. Under the Uniformed Services Former Spouses’ Protection Act, state courts may divide military retired pay as property in a divorce proceeding.
However, federal law imposes certain restrictions, including the requirement that the member must be domiciled in Massachusetts or consent to jurisdiction there for the court to divide the military pension.
Federal Government Pensions
Federal employee pensions, such as those under the Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS), can be divided by specialized court orders known as Court Orders Acceptable for Processing (COAPs). These orders differ significantly from QDROs for private pension plans and must comply with federal regulations.
Practical Considerations for Pension Division
Valuation Date
The date used for valuing pension benefits can significantly impact the division. In Daugherty v. Daugherty (2001), the Appeals Court considered whether the appropriate time for determining the value of a retirement account was the date of separation, divorce, or property division trial.
While the court decided that the date of separation was appropriate in that specific case, it emphasized that there is no fixed rule and that the issue should be decided on a case-by-case basis.
Tax Implications
The division of pension benefits has important tax implications that should be carefully considered. Qualified transfers pursuant to a QDRO are not taxable events, but subsequent distributions to the alternate payee will generally be taxable as ordinary income.
For non-qualified plans or when improper transfers occur, significant tax penalties may apply. Consulting with a tax professional is advisable when dividing pension benefits.
Survivor Benefits
Ensuring that the non-employee spouse is protected in the event of the employee spouse’s death is a critical consideration. For defined benefit plans, this typically involves securing a survivor annuity that continues payments to the former spouse after the employee’s death.
The cost of these survivor benefits is often shared between the parties, though the specific arrangement depends on the circumstances of each case.
Conclusion
Whether you’re the employee spouse concerned about preserving your retirement security or the non-employee spouse seeking your fair share of marital assets, understanding how pensions are divided is essential for navigating the divorce process and planning for your financial future.