BUT IT ISN’T FAIR! – Pension and Social Security in Divorce

BUT IT ISN’T FAIR! – Pension and Social Security in Divorce

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In California, property acquired during marriage is generally considered community property. Community property is generally divided equally, so that each spouse receives one-half of its value. However, what happens when one spouse contributes to a government pension and the other spouse contributes to Social Security? The answer creates what is arguably an inequitable result.

The divorce case directly on point is In re Marriage of Peterson (2016) 243 Cal.App.4th 923: The genders of the parties are irrelevant, so I am not using the words “Husband” or “Wife.”

Assume the following common scenario: You are eligible to receive a government pension, which means you did not pay into Social Security. You are barred from receiving Social Security pursuant to the Windfall Elimination Provision of the Social Security Act and the Government Pension Offset. Your ex-spouse paid into Social Security. If you are getting divorced there is an inequitable result as follows:

Your ex-spouse gets their community property share of your government pension, and you get none of your ex-spouse’s Social Security retirement, because Social Security is considered separate property under Federal law. That may not be fair, but Federal law preempts California law, so your ex-spouse’s Social Security is their retirement alone. Here’s where it gets even worse: The current law in California does not even allow for an offset against the calculation of community earnings and employer contributions paid into Social Security, which would potentially reduce or eliminate your spouse’s interest in your government pension.

So, your ex-spouse gets a windfall, which is their community property share of your government pension and all of their Social Security, even though your ex-spouse and their employer paid into Social Security using income and benefits earned during the marriage, which, at least before it was paid into Social Security, was community property.

This leaves you living on your share of your government pension, usually one-half of the full amount, and your ex-spouse gets to live on all of their Social Security retirement, plus their community property interest in your government pension.

Is there a solution? Don’t hold your breath.

The statement from Court of Appeal in Marriage of Peterson isn’t very satisfying if you need something done today. It said the California legislature could craft a statute to direct family law courts to assign a portion of community assets to one spouse when the other spouse’s retirement is classified as separate property under federal law. Congress could also change the Social Security Act to eliminate this provision. The Court of Appeal said, however, that whether California or federal law should be changed to address this issue is a legislative policy decision that is beyond the purview of the Court of Appeal.

A more direct solution would be for you to have a pre-nuptial or post-nuptial agreement prepared that provides for an offset of community contributions to Social Security in case of divorce, or simply makes the government employee’s pension their separate property.