When going through a divorce, a marital asset is defined as any asset that a party accrued during the marriage. For example, a husband’s retirement account that accrued during the marriage would be considered marital, while any portion of his retirement account that he accrued prior to the marriage would be considered non-marital. Therefore, when going through a divorce, the wife would only be entitled to the marital portion of the husband’s retirement account. The wife would not be entitled to anything that the husband accrued prior to the marriage.
Of course, with any legal issue, there are certain exceptions. Cue the Martin v. Martin case that came down on June 20, 2019 in Florida. This case specifically dealt with military service and how pre-marital military service credits could become a marital asset in a pension. What most people don’t know is that a member of the military is required to accrue 20 years of military service to receive military retired pay, which is the proper term for what people often refer to as a “military pension.” If a servicemember has less than 20 years of service, they are unlikely to receive retired pay. However, those years of service can be applied to certain defined benefit pension plans to enhance the value of the monthly benefit at retirement age.
Let’s take an example. Assume an officer in the Army accrued 10 years of military service. As we know, 20 years of service is required to earn retired pay from the military, that officer will most likely not receive any “pension” benefit from the military. However, if the officer subsequently obtains employment with the federal government, some federal pension plans will allow the him to utilize his 10 years of Army service to enhance they value of his federal pension benefits.
The typical defined benefit pension plan uses a formula to determine a monthly pension benefit which incorporates the years of service, average annual income, and a retirement factor (often in the range of 1-3%). So, let’s assume now that the same Army officer has worked as a federal employee for 20 years. He earns approximately $60,000 per year and has 20 years of service (in a federal position, not the Army). The Army officer’s accrued monthly benefit is approximately $1,000 (1% x $60,000 x 20 years = $12,000/12 months = $1,000 per month). Since he is a federal employee and entitled to a pension, he can essentially “add on” his 10 years of Army service to his service credits in the pension plan in order to increase his monthly benefit. However, he will have to pay a fee to do so, essentially purchasing his credits for his military years to add them to his federal pension.
In Martin v. Martin, the Florida District Court of Appeal ruled that an individual’s federal pension credits for 8 years of military service should be considered “marital property.” The pension was accrued during the marriage, but the military years were accrued prior to the marriage. The Court’s reasoning was primarily based on the fact that the husband spent $9,866 of marital funds to “purchase” additional pension credits based upon his pre-marital service. The Court ultimately awarded the wife 50% of the husband’s federal civil service pension and the Court of appeals affirmed.
In this case, by spending $9,866 of marital money to purchase pension credits, the husband added an additional $908 per month to his monthly benefit for the rest of his life. In other words, the marital investment paid for itself in 11 months, after which the additional benefit was pure profit for as long as the pension remained in pay status. The husband’s lawyer argued that if the husband he never been in the military prior to the marriage, he could not have enhanced his pension. The wife’s attorney argued that the husband participated in a federal pension during the marriage, and without that, he couldn’t have received any pension benefit for his pre-marital military years. The Court viewed this as a “marital investment” because that additional benefit would have not accrued without the marital funds.
It is important to note that many other states have reached the same conclusion, with the exception of New York and California, which have taken the position that pre-marital service credits should be considered separate property, even if the credits were purchased with marital funds. However, it appears that in all states which have ruled on the issue, if the individual were to use his or her own non-marital funds to purchase those “pre-marital” service credits and add them to the marital pension, the enhancement in value of the pension benefit would be considered nonmarital.
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