Social Security Benefits are Not Community Property

“My Social Security retirement is mine; but your pension is ours.”  Essentially, what’s mine is mine; what’s yours is ours.  This is true when it comes to Social Security retirement and a private pension plan upon divorce.

Federal Versus State

It is a common understanding, as well as a legal presumption in family law, that all property, real or personal, acquired during the marriage is community property and subject to an equal division during a divorce.  While the definition of community property encompasses all property acquired during the marriage, one particular piece of property is excluded: Social Security benefits. This is because federal law mandates that Social Security benefits earned during the marriage are, and remain, the separate property of the spouse who earned them while employed.

Though pension benefits are community property under California law, Social Security benefits are not, because federal law trumps, or preempts, California law. In California, pension benefits are considered a form of deferred compensation for services rendered by the employee/spouse, and are considered to be a community asset if they were earned during the marriage; thus each spouse owns an interest in the pension benefits, even if only one earned them while working.

The Fairness Issue

The distinction between retirement benefits as community property, and Social Security benefits as separate property is an issue that troubles family law attorneys and clients alike. This distinction seems unfair, as the spouse who contributes to Social Security during the marriage can entirely keep that benefit, while the spouse’s pension benefits must be divided equally between the parties. Essentially, one spouse may receive 150 percent of the parties’ retirement benefits (Social Security benefits and half of the pension benefits) and the other spouse may receive only 50 percent of the retirement benefits.

This particular legal quandary was recently addressed in a California Court of Appeal decision, where a wife appealed the trial court’s decision that her husband’s Social Security benefits were entirely his separate property and the wife’s county retirement benefits were to be divided equally between the parties.

Real-Life Example

In this particular case, the husband, an attorney in private practice contributed to Social Security through mandatory payroll deductions during the marriage. Hs wife, also an attorney, worked for the County of Los Angeles as a Deputy District Attorney throughout the marriage, and became a member of the Los Angeles County Employees Retirement Association (LACERA), which is a defined-benefit retirement plan. As a LACERA member, the wife was barred from contributing to Social Security.

At the time of the divorce, the trial court ruled, and the Court of Appeal subsequently affirmed, that because the husband’s Social Security benefits are separate property, and the wife’s county pension benefits are community property, the Social Security benefits may not be divided or even otherwise offset, but the county pension benefits must be divided equally. While the wife offered various remedies to correct the basic unfairness in the division of the couple’s retirement benefits, the Court of Appeal rejected the wife’s proposals, relying on the federal law mandate that Social Security benefits are separate property.

Thus, until California law, or federal law, changes to address the inequitable division of retirement benefits when pension benefits and Social Security benefits are at issue, Social Security benefits, to the dismay of many divorce litigants and family law attorneys, will remain characterized as separate property.

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