Don’t be Short-Sighted when Dividing a Pension

FelixBaseman
FelixBaseman

Imagine the following scenario:

A couple is divorcing.  The husband is entitled to a pension that will pay him a monthly income when he retires.  The pension is a marital asset.  The pension has no cash value, but the financial experts assign it a present day value of $500,000.  By its nature, this value is based solely on the amount of income that the pension is expected to provide the husband between the time he retires and the time he dies.

The husband and wife agree to settle this issue in their divorce by allowing the husband to keep his pension, and by immediately giving the wife $500,000 in marital cash as an offset.  The husband also agrees to pay his wife some amount of permanent alimony.

Years later, the husband retires at a reasonable age and petitions the court to end his alimony obligation, arguing that he no longer has any income and therefore that he does not have the ability to continue paying alimony.  Does the court have the right to consider the pension income in determining the husband’s present ability to pay?

For years, the answer seemed to be a clear “no.”  The simple logic was that the wife had already received an asset that offset the value of the pension, and the value of the pension was solely based on a consideration of the income it would provide.  If that income was then used to pay the wife’s continuing alimony, the husband would be deprived of the total value of the pension despite the fact that the wife had already received the full value of the offsetting asset.  Most courts reasoned that this was inequitable.

This changed with the Florida Supreme Court’s decision in Acker v. Acker, 904 So. 2d 384 (Fla. 2005).  There, the Court looked to the plain language of Florida’s equitable distribution and alimony statutes and concluded that the legislature’s directive to consider all financial resources available to either party in determining the appropriate amount of alimony required looking even to income from the husband’s pension that was awarded to him during the initial divorce.  Although the concurring opinion recognizes that this feels like “double-dipping,” it notes that until the legislature adds a specific carve-out to the statute, courts are obligated to rely on the plain language of the rule.

The Acker opinion makes clear that its reasoning cuts both ways as well, stating that where an alimony recipient receives part of a pension in equitable distribution, this spouse’s need for support will inevitably decrease once the pension begins to pay out.

Why does this matter?  First, this outcome is critical to consider when valuing a pension at the time of a divorce, especially in the case where alimony is involved.  The recipient of long-term alimony may not want to also receive half of a pension if that pension is simply going to result in a dollar-for-dollar reduction of that alimony award in the future.  From that spouse’s perspective, at the end of the day the pension may well have had zero value.  An alimony payor would need to perform a similar calculation.

Second, and most importantly, once this conundrum is understood, it is possible for a skilled family law attorney to account for it when preparing and negotiating a marital settlement agreement.

Although pensions are becoming less and less common in divorce cases, in the cases where they exist they are incredibly valuable as both assets and bargaining chips. Unfortunately, pensions can easily be overlooked or misunderstood by parties and attorneys alike.  It is important to make sure that they attorney you hire understands how pensions are treated under Florida divorce law and therefore how the law can be used to your advantage.  If you have any questions, do not hesitate to contact me or the other attorneys at Felix, Felix & Baseman for a free consultation.

– Mark F. Baseman, Esq.