Spouses can receive many types of benefits from their employment, in addition to their wages, salary and bonuses. In a divorce, many of these may be considered assets with quantifiable value. Like other assets in a divorce, employment benefits can be identified, characterized as community or separate property, given a value and considered in the asset division process. How to go about characterizing employment benefits in a divorce?
You have great freedom in a divorce to divide assets and debts in whatever way you can agree upon. Nonetheless, it can be helpful to know what the law has to say when it comes characterizing employment benefits as community or separate property. Here are some basics:
Characterizing Employment Benefits – Types
- Accrued vacation and sick leave pay are a form of deferred wages. To the extent they were accrued during marriage and before separation, they are community property.
- All company retirement plan accounts and pension rights attributable to employment during marriage and before separation are community property, whether or not the employee is fully vested in the retirement plan scheme. When the spouse’s participation in the scheme was only partially during the marriage and before separation, the “time rule” is often applied to determine the portions considered community and separate property. Here is an example time rule calculation. Let’s say a spouse has had 20 years of participation in a company retirement account or pension plan: 4 before marriage, 15 during marriage and before separation, and 1 since separation. The marital community’s share of the retirement benefit would be 15 years divided by 20 years or 75%. The spouse not employed by the company would be entitled to half of the community’s 75% share or 37.5%.
- Any disability payments a spouse receives from an employer because of his/her disability are considered the separate property of the disabled spouse.
- Stock options. There are many different types. Courts have broad discretion to come up with an equitable way to determine the separate and community interests in stock options. Often options were granted during marriage before separation but can only be exercised after separation.
- Severance pay. When received for employment during marriage and before separation, severance pay is community property. Sometimes a spouse is terminated after the date of separation but receives severance pay for employment during the marriage. In this situation, the severance pay is considered to be community property if it represents deferred compensation for work during the marriage. It is considered separate property if the employer intends for it to be future replacement compensation for time in which the spouse will be looking for new work.
- Social security benefits are treated as separate property and may not divided by a court in a divorce.
- Education / training received by a spouse is not considered a divisible asset of the (marital) community. The community can however request and be entitled to reimbursement for monies paid for the education / training. Also, education and training loans are normally considered separate property debts of the spouse who received the education / training.
Much of the information above about characterizing employment benefits comes from California Judges Benchguide 202 – Property Characterization and Division. It is not intended to be legal advice for your particular situation.