Methods of Pension Division in Divorce

Fitzgerald v. Fitzgerald, No. 2012-CA-000532-MR (Ky. App. 2013)
Deferred Distribution Trumps Immediate Offset Yet Again

Rendered: November 15, 2013
Not to be Published
Opinion Affirming

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The Opinions keep coming in from the Kentucky Court of Appeals.  This past Friday, the Court had the chance to yet again review another trial court’s decision with regard to the division of multiple retirement plans in divorce.

There were four combined plans at issue, two pensions and two deferred compensation plans.  Of significance in this case, Wife’s pension was with the Kentucky Teacher’s Retirement System (KTRS).  To Husband’s protest, without discussion of the value of either pension plan, the trial court divided each plan via the deferred distribution method and by utilizing QDROs (incorporating a coverture formula to determine the appropriate marital portions).  Husband sought the plans to be divided instead by the immediate offset method (also referred to as the “net present value method”; for instruction on the differing methods of pension division under Kentucky law see Armstrong v. Armstrong, 34 S.W.3d 83 (Ky. Ct. App. 2000)).  The Court of Appeals, in affirming the trial court’s decision to divide the pensions via deferred distribution, considered both the speculative nature of a pension plan in terms of actualization of benefits for the participant and the difficulties involved with attempting to equalize state and private pension plans.

To the practitioner with a ‘perked ear’:  The Court took heed of the trial court’s finding that the KTRS plan included post-retirement cost-of-living (COLA) increases and did not include participant payments into Social Security.  While to the contrary, Husband’s private pension did not include COLAs and did pay into Social Security.  Could this mean Kentucky courts are ready to look at issues our sister states have previously reconciled (i.e., the difficulties in comparing the valuations of government and private pensions that have often incompatible terms, like whether the participants pay into Social Security, are entitled to COLAs, etc.)?

As a side note of interest, at trial, the parties called a joint witness to address the issues of the four retirement plans.  The trial court ordered that the witness prepare the resulting QDROs ordered by the Court (for both the pensions and the deferred compensation plans) and that the parties “equally share the cost of [the witness’s] service.”  In such complex matters, perhaps the joint hiring of a skilled intermediary is a worthy consideration in order to avoid a Pyrrhic victory in the courtroom.  That is, when the parties truly seek a neutral third party to preserve the equities, and share the mutual desire to keep the costs of litigation from eating away at the ‘reason for fighting’.