Equitable Distribution of Social Security and Pera Accounts

By: Curtis Wiberg

Colorado law requires a Court dividing a marital estate in a divorce to divide the estate “equitably”, meaning fairly. See C.R.S. § 14-10-113. More often than not, an equal division of marital assets is the fairest result and the norm in most cases. However, equal is not always fair, and a glaring examples of this is evident when one party has built up a PERA retirement account, while the other has paid into Social Security. This article will focus on PERA, the unequal allocation of marital property after consideration of Social Security benefits, and a 2005 Appellate Court decision.

PERA (Public Employee Retirement Account) accounts are considered, under Colorado law, to be a marital asset. Social Security benefits, on the other hand, are forbidden under federal law from being valued and divided as a marital asset in a divorce. PERA employees, such as teachers or other government workers, receive their benefits built up from their public employment in lieu of Social Security, rather than in addition to Social Security. Thus, by electing to take part in PERA, they are divested of certain Social Security benefits.

In a divorce where one party is set to receive a monthly annuity payment under PERA, while the other is set to receive monthly Social Security can result in a situation in which a Court could hypothetically divide the PERA account, while being forbidden from even valuing and dividing the other party’s Social Security. In such a situation, the party receiving Social Security could walk away with a significant economic advantage going into retirement compared to the spouse who had her PERA benefits divided and awarded to the spouse whose Social Security benefits remain untouched.

C.R.S. § 14-10-113 gives a Court a lot of discretion in formulating an equitable or fair result, and the law explicitly requires Courts to consider the relative “economic circumstances” of each party. See C.R.S. § 14-10-113 (1)(c). It was this specific provision which the Colorado Court of Appeals decided gave them latitude to rule in 2005 that a court, while forbidden from valuing and dividing Social Security benefits, is not forbidden from recognizing the “economic circumstance” that one party will be receiving Social Security benefits while the PERA benefits party will not. See, In re: Marriage of Morehouse, 121 P.3d 264 (Colo. App. 2005).

The Morehouse court panel considered how other states treated the situation involving one spouse receiving public employment benefits rather than Social Security, noting that many other states’ courts, including Iowa, Kansas, Maine, Massachusetts, Missouri, Ohio, Pennsylvania and Washington all interpreted the conflict between federal law’s protection of Social Security and a Court’s duty to divide a divorcing couple’s property equitably as follows:

“We see a crucial distinction between: (1) adjusting property division so as to indirectly allow invasion of [Social Securtiy] benefits; and (2) making a general adjustment in dividing marital property on the basis that one party, far more than the other, can reasonably expect to enjoy a secure retirement. It should not invalidate a property division if a disproportionate expectation regarding Social Security benefits is acknowledged in the court’s assessment of the equities.” Morehouse, at 266.

The Morehouse court panel went on to add, “In Colorado, a trial court must consider all relevant factors to achieve an equitable, but not necessarily equal, distribution… That one spouse is likely to receive Social Security benefits is a relevant economic circumstance – similar to the fact that a spouse has an inheritance or a greater earning capacity – which may justify an unequal distribution of marital property in the interests of justice… Thus while a trial court may not distribute marital property to offset the computed value of Social Security benefits, it may premise an unequal distribution of property — using, for example, a 60-40 formula instead of 50-50—on the fact that one party is more likely to enjoy a secure retirement. We will not presume that an unequal distribution reflects an impermissible offset of Social Security benefits, especially when the distribution is justified by a combination of factors.” Morehouse, at 267.

Ultimately, then, if you are a PERA employee going through a divorce, and your spouse is wanting a significant portion of your PERA retirement benefits, understand that there is precedent for a Court protecting some or all of your benefits if your spouse is in line to receive Social Security or is otherwise predisposed to enjoy a more secure retirement even without your PERA benefits. If you have questions about how Courts divide marital estates and retirement accounts, call Plog & Stein to set up a consultation with our divorce lawyers.