What happened in this 2022 case in Cookeville, Putnam County, Tennessee when the Husband and Wife agreed to a percentage of the Wife's pension, and the Wife later realized that the Husband would be getting a portion of her retirement that would be all the non-marital accumulation after the divorce?
The Husband had an actuarial expert. There is no mention that the Wife had an expert. The Wife's pension was significantly greater than the Husband's and the values were present day - almost a $250,000 difference, which is equal to $125,000 from Wife to Husband to equalize, if they were going to equalize. Since the Wife did not have marital funds to give the Husband his portion, the Husband and Wife agreed to a formula to use from the Wife's unvested retirement benefits which she would receive in the future. The Husband and Wife could not agree on the language to use for the distribution, so they left it up to the judge, whom is presumably not an accountant.
In this Putnam County, TN divorce case, ROBERT MARTIN THOMPSON v. CHRISTIE LEE THOMPSON, M2020-01293-COA-R3-CV, Court of Appeals of Tennessee, Nashville, February 9, 2022, the Appellate Court affirmed Judge Amy Hollars' Order as to the division of pension, as per the parties' agreement. At the same time, the Appellate Court gave an equitable distribution lesson with regard to division of pensions, both vested and unvested.
Tennessee authorizes two methods for the division of pensions in divorce proceedings: present value or deferred distribution.
Present value is an actuarial method of calculating the current value of a future income stream that "requires the trial court to place a present value on the retirement benefit as of the date of the final decree." "Once the present cash value is calculated, the court may award the retirement benefits to the employee-spouse and offset that award by distributing to the other spouse some portion of the marital estate that is equivalent to the spouse's share of the retirement interest." The present cash value method is preferable when "the marital estate includes sufficient assets to offset the award."
In contrast, "deferred distribution" does not require a determination of the present value. Instead, "the court may determine the formula for dividing the monthly benefit at the time of the decree but delay the actual distribution until the benefits become payable." Thus, the deferred distribution method permits the non-employee spouse to receive their marital share in the future rather than at the time of divorce. See Kendrick, 902 S.W.2d at 927-28 (explaining that deferred distribution is preferred when the marital estate does not contain sufficient property to offset an award upon divorce of the parties). When vesting or maturation is uncertain or when the retirement benefit is the parties' greatest or only economic asset, courts have preferred the "deferred distribution" method to distribute unvested retirement benefits. The deferred distribution method is calculated in two steps: (1) the coverture or marital fraction is multiplied by a percentage that represents the non-employee spouse's equitable interest in the martial portion of the retirement benefits; (2) and the resulting percentage is multiplied by the employee spouse's total monthly retirement benefits to calculate the amount due to the non-employee spouse. See Croley, 2000 WL 1473854, at * 7; see also Cohen, 937 S.W.2d at 831 n.9. The coverture fraction represents the "marital portion," which is then equitably divided between the parties as marital property. See McFarland v. McFarland, No. M2005-01260-COA-R3-CV, 2007 WL 2254576, at *14 (Tenn. Ct. App. Aug. 6, 2007) (explaining that the coverture fraction represents the marital portion of the retirement benefits of which the non-employee spouse should receive a portion to affect an equitable division of the employee spouse's monthly benefits); see also Tennessee Code Annotated § 36-4-121.
Moral of the Story: When $250,000 plus funds are at stake, and not to mention, the accumulation of non-marital pension funds in the future, the Wife should have spent a couple of thousand dollars more for a financial expert to help with the language and/or work with the Husband's expert to develop the language for the Agreement; rather than have a judge decide on language.
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