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I’m a Beneficiary of My Spouse’s Pension- Is that Marital Property in a Divorce?

By: Jessica A. Bryant

After getting married it is not uncommon for people to change the beneficiaries on their various accounts (life insurance, stocks, retirement accounts, etc.) to their new spouse.  In the event of a divorce, most types of accounts allow the beneficiary to be changed (be cognizant of the automatic temporary injunction that goes into place when a divorce is filed that prohibits changing the beneficiaries of certain accounts without agreement or court order until the case is completed).  However, one exception to this ability to always change the beneficiary, is a pension account.  Most pension beneficiary rules have a time frame after which the beneficiary cannot be changed.  For example, sometimes, when the person retires, that triggers the event such that their beneficiary designation becomes irrevocable.  So the question may arise, if a divorce is filed after the beneficiary designation becomes irrevocable, does the fact that you are a beneficiary of your spouse’s pension plan, or vice versa, mean that you have a marital property interest in their pension?

Unfortunately, like many legal questions, there is not necessarily an exact answer.  There is an argument that could be made that the beneficiary has a marital property interest; however, there are also many ways to counter the potential argument.  The main argument is what, if any, value the beneficiary interest actually has.  The interest itself is subject to divestment, which is a fancy legal way to say, may end up having no value to the beneficiary.  For example, if the beneficiary predeceases the pension-holder, or if the pension-holder lives beyond an expected age, the beneficiary may end up getting no benefit.  Therefore, it is a very speculative issue.  If the divorce case goes to a hearing, one option would be to argue to the court that the beneficiary interest is too speculative to have any actual value and, therefore, the beneficiary’s portion of the marital estate should not be reduced simply due to some uncertain, future interest that may not even result in any actual money being received by the beneficiary.  The beneficiary could also argue that the pension holder made a gift to them by naming them the beneficiary and, thus, it is their separate property interest and should not be considered when dividing marital property and debt.

The main argument that can be made against a person trying to claim the beneficiary interest should be credited to the beneficiary as marital property is as follows: in order to designate a beneficiary, the pension holder typically takes a lower monthly payout than they would typically receive.  If that pension-holder is requesting maintenance (spousal support) from the beneficiary, the amount they are requesting in maintenance would be lower if there was not a beneficiary interest because their income for the maintenance calculation (their pension income) would be higher.  Therefore, the beneficiary of the pension may end up paying more in maintenance during the pension holder’s life and, therefore, being the beneficiary to the pension simply balances out this higher payment.

Another issue that arises is the fact that, if this argument is being made, you would likely need an expert to determine the present value of such property interest.  A CPA could examine the pension, benefit, life expectancies, etc. and put a value on the beneficiary interest.  However, as mentioned, due to the uncertain nature of the beneficiary interest, even that number is not a guarantee.  In other words, you could pay an expert a few thousand dollars to put a value on an interest that is still speculative.  The question, at that point, must be asked if it is even worth the expert’s cost or if there is another way to deal with the interest.  For example, the pension beneficiary could propose making the pension holder a beneficiary of their pension or retirement to try to off-set beneficiary interests and avoid an expert valuation or court battle over the issue.

Ultimately, it is very important to consider all potential ramifications when naming beneficiaries to various accounts, especially pension accounts, as it could have long-lasting effects, even after a divorce.

Author Photo

Stephen Plog, co-founder of Plog & Stein, P.C. in 1999, is a dedicated family law attorney with almost two decades of expertise in Denver. Focused exclusively on family law since 2001, he excels in both intricate legal writing and courtroom litigation, having navigated cases in all Denver metropolitan area District Courts. Steve’s comprehensive background, including a Bachelor’s Degree in Psychology and a law degree from Quinnipiac University School of Law, underscores his commitment to providing insightful and personalized representation in family law matters.