Just PENSIONS

Disposition of retirement benefits is a three-step process: valuation to determine present value, apportionment between separate and community interests, and assignment of the retirement benefits to one party with other assets of equal value to the other party or division of each retirement benefit as it is paid. Generally, the time rule is used for apportionment between community and separate property interests. As an alternative, apportionment can be made on another parameter. (See the insurance apportionment rule in Adams [1976] for a method based upon direct tracing, see Behrens [1982]).

A. Time Rule

The time rule, described and approved in Judd [1977], Freiberg [1976], Anderson [1976] and Bensing [1972] defines the value of the community interest as the amount of total interest times the fraction with:
Numerator: Service While Married Before Marriage Separation

Denominator: Total Service Note:

However, Henkle [1987] held that once maximum benefits are earned further employment is not considered in the time rule formula.

B. Reasons in Favor of the Time Rule

Judd [1972] suggests that the time rule is the most appropriate method of allocation that the relation between years of community service to total years provides a fair gauge of that portion of retirement benefits attributable to community effort.

C. Other Rules of Apportionment

1. Contribution Rule
Adams [1976] however, indicates that the time rule is not the only rule of apportionment. The case mentions the insurance apportionment rule which applies a percentage based on the ratio of the amount paid into the fund during marriage to the total amount paid. This rule does not apply to situations involving employer-paid defined benefit plans.

2. Reasonableness Rule

Freiberg [1976] stated that the criterion governing judicial action (on apportionment) is reasonableness under the circumstances. One difficulty in the application of the time rule is that the term service has not been precisely defined. Many pension plans employ two definitions of service: one for years of vesting, and another for years of benefit service (for calculating the amount of the pension benefit). Another problem is the treatment of a waiting period before an employee may become a participant in the pension plan (sometimes, the time until age 21 and one year of employment; or three years of employment, with no age requirement). Existing case law does not make the fine distinctions needed in such circumstances.

3. Time-Worked Rule

In Poppe [1979] the court concluded that apportionment should depend on the nature and frequency of the service rendered. Since the points involved in Poppe were conceptually equal to employment days, the apportionment in Poppe does not represent an alternative to the time rule, but rather a refinement. Similarly, time in the reserves which did not count towards the pension was not included (Davis [1980]) and the unevenly accrued, but work related “credits” in Lionberger [1979] were used in lieu of calendar-time for apportionment purposes.

4. Benefits Rule

A benefits rule approach apportioning the retirement benefits based upon the benefits earned during the community period to total benefits earned is a possibility. Assume a pension plan formula that develops a pension benefit of $350 per month for service during the first ten years of employment and $650 per month for service during the second ten years of employment. Assume a marriage of ten years. Under a benefits rule of apportionment, a pension benefit of $350 per month would be community property if the marriage were during the first ten years of employment, and $650 per month if the marriage were during the second ten years of employment. Under the time rule method of apportionment, the community interest in a ten-year marriage would be $500 per month.

5. Time-Salary Rule

If the legal position is taken that the community does not share in higher pensions resulting from increases in pay after marriage separation, a time-salary rule of apportionment might be used. Such a rule would define the community interest as the amount of the total interest times the ratio of (a) to (b):
a. Service While Married Times Plan-Salary Before Trial to

b. Service at Retirement Times Plan-Salary at Retirement

6. Direct Tracing

Behrens [1982] used a direct tracing method to determine community interest in a profit sharing plan. This case does not discuss the time rule. The issue in Behrens is whether the postseparation funding came from earnings on the community interest or from earnings of the employee spouse.

7. Proper Method ?

The nearly complete acceptance of the time rule suggests that it is innately the best method. Justification for the time rule is based on the principle that the nonparticipant spouse is rendering services throughout the community’s existence, independent of the participant’s benefit accrual pattern.