Spousal Support and Pension Benefits in Divorce: Avoiding Double Dipping in California

When navigating the complexities of divorce, particularly after a long-term marriage, the division of assets and spousal support can lead to disputes years later. One common issue is the misconception of “double dipping,” where a spouse claims that paying spousal support from pension income is unfair if the pension was already divided. This article explores a legal scenario involving pension benefits and spousal support, clarifies the concept of double dipping, and provides strategies to protect retirement income, grounded in California family law.

What is Double Dipping in Divorce Settlements?

Double dipping is a term used in divorce law to describe the perceived unfairness of a supported spouse receiving both a share of the earner spouse’s pension as part of asset division and spousal support from the same pension income after retirement. This issue often arises when the earner spouse retires, relying solely on pension income, and seeks to modify or terminate spousal support.

• Legal Context: Courts, particularly in California, have clarified that using pension income for spousal support after its division as a marital asset does not constitute double dipping. The pension’s value as an asset is separate from its income stream post-retirement.
• Common Misconception: The earner spouse may argue that the supported spouse is taking “two bites of the same apple,” but legal precedents like In re Marriage of White (1987) refute this claim.

Case Scenario: Pension Division and Spousal Support Dispute

After a long-term marriage (more than 10 years), the parties enter into a Stipulation dividing marital assets and awarding Wife spousal support.

As part of the division of assets, Wife takes Husband’s interest in the family residence and, in return, she gives to Husband her community interest in his pension/retirement benefits. The two assets are of equal value and act to set each other off such that an equal division is achieved. So far, so good, proper division of community property and proper support paid to Wife.

Now it’s ten years later, and Husband wants to retire. After retirement, Husband’s sole income is realized from the proceeds of his pension/retirement plan. Husband requests Wife terminate spousal support because her interest in his pension/retirement benefits has already been “bought out,” meaning she took for herself Husband’s interest in the family residence, in exchange for giving Husband her interest in the pension. Thus, claims Husband, to pay wife spousal support from the proceeds of his pension would be “double dipping,” or two bites of the same apple.

The Appellate Court disagreed, stating that support paid from an asset purchased from the other spouse is not double dipping, that “‘to treat a pension as marital property, award it entirely to the earner spouse (with an offsetting award of marital property to the non-earner spouse) and then to take the earner spouse’s receipt of pension benefits into account in determining whether there should be any alimony award to either spouse.’”

This is the rule outlined in the case of In re Marriage of White (1987) 192 CA3d 1022, 237 CR 764. It is often referred to as the supported spouse’s “two bites of the apple.” To avoid this result, the employee spouse should seek an order dividing the pension in-kind. If the pension is being assigned to the employee’s spouse by stipulation, then the stipulation could provide that the income from the pension will not be considered in any future spousal support modification proceedings.

This would be binding on the court under Family Code, §3590. Suppose the parties wish to enter into such an agreement. In that case, the attorneys for both parties should carefully explain, in writing, the effect of such a stipulation on spousal support after retirement.

Understanding Key Legal Concepts

To fully grasp the scenario, it’s essential to understand the legal terms and principles involved in dividing pensions and determining spousal support.

• Community Property: In California, assets acquired during a marriage, including pension contributions, are considered community property, subject to equal division upon divorce. For example, a pension earned during the marriage is split, but post-divorce contributions may be separate property.
• In-Kind Division: This refers to dividing the pension so both spouses receive a portion of future payments, typically through a Qualified Domestic Relations Order (QDRO). Unlike an offsetting award (e.g., trading the pension for the family home), in-kind division ensures both parties share the pension’s income stream.
• Spousal Support (Alimony): Spousal support is financial assistance paid to a supported spouse post-divorce, based on factors like marriage duration, income disparity, and lifestyle during the marriage. Pension income can be considered when determining support amounts.
• Family Code, §3590: This California statute allows parties to stipulate that certain income sources, like pension benefits, are excluded from future spousal support calculations, provided the agreement is clear and consensual.

Why Isn’t This Double Dipping?

The In re Marriage of White (1987) 192 CA3d 1022, 237 CR 764, ruling provides clarity on why using pension income for spousal support is not double dipping:

• Asset vs. Income: When a pension is awarded to the earner spouse with an offsetting asset (e.g., the family home) to the non-earner, the pension’s value as a marital asset is settled. Post-retirement, the pension’s income is treated as new earnings, not a redivision of the asset.
• Fairness Principle: Excluding pension income from spousal support calculations could unfairly limit support for the non-earner spouse, especially if the earner’s income is solely from the pension.
• Legal Precedent: The court emphasized that considering pension income for support does not violate the principles of equitable asset division, ensuring both parties’ financial needs are addressed post-divorce.

This ruling has influenced subsequent California cases, reinforcing the distinction between asset division and income-based support.

Strategies to Protect Pension Income in Divorce

To avoid disputes like the one in the scenario, divorcing parties can take proactive steps to protect retirement income from impacting spousal support obligations. Here are actionable strategies:

1. Opt for In-Kind Pension Division:

• • Divide the pension through a QDRO, ensuring both spouses receive a share of future payments. This reduces the likelihood of the earner spouse’s pension income being solely responsible for spousal support.
  • Example: If a pension is valued at $500,000, an in-kind division might allocate 50% of future payments to each spouse, rather than assigning the entire pension to one.

2. Include a Stipulation Clause:

• • Draft a divorce stipulation excluding pension income from future spousal support modifications, as permitted by Family Code, §3590.
  • Both parties’ attorneys must document the clause’s implications in writing to ensure informed consent and enforceability.
  • Example: The stipulation might state, “Income from Husband’s pension shall not be considered in any spousal support modification proceedings post-retirement.”

3. Seek Expert Legal Guidance:

• • Consult a family law attorney experienced in California divorce law to draft precise agreements addressing pension division and support.
  • Attorneys can ensure stipulations comply with legal standards and protect both parties’ interests.

4. Plan for Retirement Income:

• • Consider other income sources (e.g., investments, part-time work) to reduce reliance on pension income for spousal support obligations.
  • Financial planners can help structure retirement plans to minimize support disputes.

Factors Affecting Spousal Support Modifications

Beyond pension income, courts consider several factors when evaluating requests to modify or terminate spousal support, especially after retirement:

• Change in Income: Retirement often reduces income, prompting modification requests. Courts assess whether the change is significant and permanent.
• Remarriage: If the supported spouse remarries, spousal support typically terminates, unless otherwise stipulated.
• Marriage Duration: Long-term marriages (over 10 years) often result in longer support durations, making termination harder.
• Lifestyle Standard: Courts aim to maintain the supported spouse’s standard of living established during the marriage, which may justify continued support from pension income.
• Health and Age: The supported spouse’s health or age may influence support decisions, especially if they cannot work.

Understanding these factors helps parties anticipate court rulings and plan accordingly.

How Are Pensions Valued in Divorce?

Valuing pensions in divorce is a critical step to ensure equitable division. The process involves:

• Actuarial Valuation: An actuary calculates the pension’s present value based on contributions during the marriage, expected payments, and life expectancy.
• QDRO Preparation: A Qualified Domestic Relations Order legally assigns a portion of pension payments to the non-earner spouse, ensuring accurate division.
• Community vs. Separate Property: Only pension contributions made during the marriage are community property. Pre-marriage or post-divorce contributions are separate property.
• Tax Implications: Pension distributions may have tax consequences, which should be addressed in the divorce agreement.

For example, a pension with a present value of $400,000, earned entirely during a 20-year marriage, would typically be split equally, with each spouse entitled to $200,000 in value or equivalent payments.

Historical Context: Impact of In re Marriage of White

The In re Marriage of White (1987) case set a precedent in California family law, shaping how courts address pension income and spousal support. Its key impacts include:

• Clarification of Double Dipping: The ruling debunked the double-dipping myth, ensuring pension income could be used for support without violating asset division principles.
• Influence on Later Cases: Subsequent rulings have cited In re Marriage of White to uphold the separation of asset division and income-based support, reinforcing its authority.
• Guidance for Stipulations: The case highlighted the importance of clear stipulations to limit pension income’s role in support modifications, prompting more precise divorce agreements.

This historical context underscores the ruling’s enduring relevance in divorce law.

Frequently Asked Questions

What is double-dipping in a divorce settlement?

Double dipping refers to the incorrect belief that paying spousal support from pension income, after the pension was divided as a marital asset, is unfair. California courts, per In re Marriage of White (1987), clarify that pension income is separate from the assets’ division, so it’s not double dipping.

Can pension income be used for spousal support after divorce?

Yes, pension income can be considered for spousal support, as it’s treated as post-divorce earnings. Courts evaluate it alongside other income sources to determine fair support amounts.

How can I protect my pension from spousal support obligations?

To protect your pension in a divorce, consider dividing it in-kind through a QDRO so both parties receive direct payments. You can also include a stipulation under Family Code § 3590 to exclude pension income from future spousal support modifications. Consulting a family law attorney ensures these agreements are enforceable.

What is an in-kind pension division?

An in-kind division splits the pension’s future payments between both spouses, typically through a QDRO, rather than assigning the entire pension to one spouse with an offsetting asset like a home.

What factors influence spousal support modifications after retirement?

Courts consider several factors when evaluating spousal support modifications, including changes in income due to retirement, the remarriage of the supported spouse, and the duration of the marriage, along with any prior support agreements. They also assess the health, age, and lifestyle needs of both parties to determine whether continued support is appropriate.

How are retirement benefits valued in a California divorce?

Retirement benefits are valued using actuarial calculations, focusing on contributions during the marriage. A QDRO ensures accurate division, and tax implications are addressed in the agreement.

What is a Qualified Domestic Relations Order (QDRO)?

A QDRO is a legal document that assigns a portion of pension or retirement plan payments to a non-earner spouse, ensuring equitable division in divorce.
Navigating pension division and spousal support in divorce requires careful planning to avoid disputes like double-dipping claims. At Reape Rickett, our experienced family law attorneys can help you draft precise stipulations, protect your retirement income, and ensure equitable asset division. Contact us today to schedule a consultation and secure your financial future post-divorce.