DIVORCE MISTAKES - IT’S YOUR PROBLEM

Definitions:
titled-spouse:         spouse with pension
non-titled spouse:  spouse that does not have the pension

Much has been written about the economic problems of non-titled spouse’s trying to obtain a portion of the titled-spouse’s pension in divorce. The economic trials of many non-titled spouse’s have their origin in a divorce that fails to find, value and award an equitable portion of the total employee benefits package to the divorcing spouse.  Too often the titled-spouse’s most valuable assets are either ignored, not found, undervalued or inequitably divided upon divorce.  Retirement benefits constitute either the largest or second largest family asset. A non-titled spouse’s difficulties in trying to obtain his or her equitable share of these valuable assets could become the beginning of his or her economic decline.  Your divorce, and the settlement you make determines the balance of your economic life, which in turn is a major factor in the quality of the life that you and those dependent on you will experience.  Your divorce is a defining moment that will dramatically impact the balance of your life.

In many cases the objective of the titled-spouse is to deny the other spouse access to or knowledge of critical information that would assist them in establishing a basis for the Equitable Distribution of marital/community property.  At the beginning of the divorce you must be able to act with knowledge and skill to avoid an economic disaster.  An unprincipled titled-spouse knows that the most effective way to bar meaningful action by his or her spouse is to deny the funds necessary to mount an effective challenge to the titled-spouse’s efforts to deny the other spouse an equitable share of this valuable benefits package.

Central to an exploitative titled-spouse’s initial efforts will be an attempt to prevent the other spouse from conducting a meaningful investigation of the benefits package.  It is obvious that you will not share in assets that you do not know exist.  Hence, a titled-spouse’s first line of defense is to prevent the other spouse from gaining knowledge of the extent of these assets.  The other side of this is the fact that DISCOVERY is central to your building an effective case to support your arguments for Equitable Distribution of marital/community property.  In a divorce action involving retirement assets, it is essential that comprehensive Discovery is conducted.  Once you are confident that meaningful Discovery has been conducted it is suggested that you then have the data examined by a pension expert.  If this was not done there is a reasonable basis to conclude that your settlement was based on incomplete knowledge of benefits and the worth of these benefits.

Too often a non-titled spouse is advised that the sole pension asset is either a Defined Benefit Plan or a 401(k) Plan.  This absence of full knowledge and understanding of your spouse’s comprehensive retirement package may be the single greatest obstacle to the effective division of marital/community property in divorce.  Non-titled spouse, be clear, you will not share in assets that are not disclosed in the course of your divorce.  In your efforts to find, value and share the full benefits package the obstacles encountered are many and complex.  The divorcing spouse must become part accountant, part pension expert and part detective.  The task is daunting, but failure to rise to this challenge will impact you and your families’ lives for years. 

To make this task more manageable this article seeks to establish a road map that the divorcing spouse can use in order to maximize every opportunity to equitably share in the potentially rich benefits packages acquired by titled-spouse’s in the course of a marriage. 

Where to begin?
Start with Discovery of the titled-spouse’s entire benefits package.  Do not focus on any single asset.  Avoid the term “pension”.  It is a term of limitation.  Instead, focus your efforts on the full employee benefits package.  If you are divorced, go back, collect your divorce data and confirm that the Discovery and valuations performed in your matter were comprehensive and accurate.  If such examination indicates flawed or incomplete Discovery, then prompt remedial action is suggested.  Delay is the ally of the divorcing and divorced titled-spouse!

To give the reader an idea of how easy it is to be misled regarding employee benefits we provide three illustrations.  These illustrations are based on real companies, but, for this article the actual names of the employers has been changed.

DISCOVERY THE NEGLECTED ELEMENT OF THE EVALUATION PROCESS

For example, assume the titled-spouse is an airline pilot employed by TRIANGLE Airlines.  You are advised that there is only one pension plan:

TRIANGLE PILOTS RETIREMENT PLAN

Based on this statement the parties settle the pension part of the case.  Had the spouse performed discovery with TRIANGLE he or she would have become aware of and valued the following additional plans:

TRIANGLE PILOTS MONEY PURCHASE PENSION PLAN (this plan replaced the TRIANGLE Pilots Target Benefit Plan)

TRIANGLE PILOTS BRIDGE PLAN (a Non-Qualified Plan)

TRIANGLE PILOTS SUPPLEMENTAL ANNUITY (a Non-Qualified Plan)

TRIANGLE  FAMILY-CARE SAVINGS PLAN (this is another Qualified Defined Benefit Plan)

Knowledge of these additional benefits and their worth are essential to the Equitable Distribution of marital/community property.

Moreover, the titled-spouse need not be a professional to participate in a multiple benefit program.  Consider a skilled trade.  In the course of the action the skilled trade presented to the other spouse a statement indicating participation in only one plan.

ANNUITY PLAN OF THE TIN TIRE INDUSTRY

Based on this statement the parties settled the pension part of the case.  Had the Wife performed discovery with the TIN TIRE industries Benefit Industry Board and with the O.T.E.W. he or she would have become aware of and valued the following additional plans:

PENSION, HOSPITALIZATION AND BENEFIT PLAN OF THE TIN TIRE INDUSTRY PENSION TRUST FUND (this is a Defined Benefit Plan)

DEFERRED SALARY PLAN OF THE TIN TIRE INDUSTRY (this is a Defined Contribution Plan)

ADDITIONAL SECURITY BENEFITS PLAN OF THE TIN TIRE INDUSTRY (this is a Defined Contribution Plan)

NATIONAL TIN TIRE BENEFIT FUND (this is a Defined Benefit Plan)

ABEW PLAN FROM Chicago, IL.  (this is a Defined Benefit Plan)

If the divorcing spouse had conducted proper Discovery he or she would have found, valued and distributed a retirement package of significantly greater value.

DISCOVERY REGARDING A MID-LEVEL EXECUTIVE

At this level it is suggested that comprehensive discovery be performed with the Executive’s employer.  To rely exclusively on a benefit statement can result in a significant understatement of the Executive’s Pay Package.
Let’s now look at what can happen when discovery regarding a mid-level or senior level executive is incomplete.  Assume the Executive was a mid-level executive with MOMO and provided counsel with a copy of a benefit statement for a single plan.

RETIREMENT PLAN FOR THE SALARIED EMPLOYEES OF MOMO & CO., INC.

Had the non-titled spouse concluded that this statement was sufficient the following parts of the benefit package might not have been discovered.

MOMO & CO., INC. EMPLOYEE SAVINGS AND SECURITY PLAN

MOMO & CO., INC. EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN

MOMO CASH BALANCE RETIREMENT PLAN

MOMO & CO., INC. SUPPLEMENTAL RETIREMENT PLAN (this is a Non-Qualified Plan)

MOMO & CO., INC. DEFERRAL PROGRAM (this is a Non-Qualified Plan)

MOMO & CO., INC. EXECUTIVE INCENTIVE PLAN (this is a Non-Qualified Plan)

MOMO & CO., INC. ANNUAL INCENTIVE PLAN (this is a Non-Qualified Plan)

MOMO & CO., INC. STOCK OPTION PLAN.  To value this plan requires extensive discovery as Stock Option Plans are often “merged” into newer plans, for example with MOMO:

1985 INCENTIVE STOCK OPTION PLAN
1989 NONQUALIFIED STOCK OPTON PLAN
1995 INCENTIVE STOCK PLAN (replaced the 1985 plan)
1999 INCENTIVE STOCK PLAN (replaced the 1989 plan)