Milwaukee Retirement Pension Plans
Fighting for your financial security in Milwaukee and Waukesha counties
Retirement benefits, including pensions, many times are the most lucrative assets in a marriage. How they are treated as part of property division carries important implications as to the division of the estate, tax issues, and survivor benefits. Whether pensions may be treated as income for support purposes or as equal property division is an important factor in deciding how the retirement plan should be divided.
We negotiate the division of retirement plans to protect our client’s rights. We obtain all of the necessary financial information to have a better understanding of what those benefits are; we have the pension plans present valued so we know not only what the pension may pay at retirement, but what the present value of the plan is, so that our clients’ have an option of considering a buyout of the plan. Further, we insure that if we are representing the alternate payee, that they are afforded their survivor benefits under the plan. Finally, the plans when divided are secured by a qualified domestic relations order (QDRO), which are promptly drafted and filed with the court and the plan administrator immediately following the final divorce.
Pension Plan in Pay status; income or property rights?
It has been the prevailing thought under Wisconsin law that pension plans should be treated as a property right, divisible at the time of the divorce equally. This would be true whether the participant was pre-retirement age and therefore not eligible to draw their pension benefits, or if the participant already was retired and the pension was plan in pay status.
Steinke v. Steinke, 126 Wis. 2d at 379, 376 N.W. 2d 839 (1985) is the leading case in Wisconsin wherein it was determined that a spouse’s interest in a pension plan is in the nature of property of the marital estate to be divided. The marital estate represents the total of the wealth of property brought into the marriage by either party, as well as wealth accumulated during the marriage, pursuant to the parameters of sec. 767.255 (now renumbered as sec. 767.61 Stats.). The division of the estate, presumed to be equal, effectuates the policy that each spouse makes a valuable contribution to the marriage and that each spouse should be compensated for his or her respective contributions. An interest in a pension plan is a part of the wealth brought to, or accumulated during the marriage. As with other property constituting the marital estate, the value of the pension interest must be included in the property division.
In Herdt v. Herdt, 152 Wis. 2d 17, 447 N.W. 2d 66 (Ct. App. 1989), the court held that an unequal property division in lieu of a maintenance award was not an abuse of discretion. The court stated the following:
While Steinke mandates that pension funds be considered as part of the marital estate, it does not remove the trial court’s discretion to make an unequal property division for good reason. Sec. 767.255(8), now renumbered as Sec. 767.61, specifically permits the trial court to make an unequal distribution of marital assets based upon an award of maintenance.
Was the door open to treat pensions as income in the case of In re Marriage of Cook v. Cook, 208 Wis. 2d 166, 560 N.W. 2d 246 (1997)? While the court determined that military retired pay must be considered as property for purposes of property division unless otherwise excluded by law, it may also be considered as income to the recipient for purposes of calculating child support.
The principal issue in the case was whether military retired pay which has been divided between the spouses in the property division may be considered as income in calculating a spouse’s obligation for child support.
The court stated at page 183 of the decision:
“We agree with this case-by-case approach. The circuit court must carefully exercise its discretion to fashion an equitable scheme of property division and child support. It must be free to do so in the manner most consistent with the needs of the children and the resources of the parents in each case. Although they are often analyzed separately, it is critical that property division and child support (and maintenance, if any) be considered together. As Professor Blumberg explains: (T)he ultimate test of a negotiated settlement or decree is not how well any one issue has been resolved, but instead whether all the economic components work together to provide adequately for the needs of all members of the now-fragmented family.”
The court went on to hold that the husband’s military retired pay must be considered as property for purposes of property division AND may be considered as his income for purposes of calculating child support.
For 19 years after Steinke, the prevailing thought in Wisconsin was that pensions were presumptively treated as a property right, including those individuals who were already retired and drawing their monthly pension benefits. Did that all change with the case of Dutchin v. Dutchin, 273 Wis. 2d 495 681 N.W. 2d 295 (Ct. App. 2004)?
In the case of Dutchin, the court referenced its’ power to use “broad discretion” in determining divorce settlements. According to the ruling set forth in Dutchin, including the petitioner’s retirement benefits as a part of the marital estate would have introduced “unnecessary complications” and a “circular flow of funds” in the form of additional maintenance payments between the parties. Because of the unique nature of the retirement plan (i.e.. conditions which surrounded the handling of survivorship benefits to be awarded to the respondent, Judith Dutchin, in the event that one of the parties predeceased the other) the court found it to be a more reasonable and equitable solution to treat the retirement benefits in question as part of the “income stream” received by the party in question. This approach, when compared to including the retirement benefits as a part of the property to be divided equally and reasonably between the parties, was found to be the more “logical and practical approach” to structuring a fair and equitable settlement for the parties. The court stated the following:
“Trial courts are presented with an infinite range of factual situations in addressing the complicated decision of dividing property and determining maintenance. Cook v. Cook, 208 Wis. 2d 166, 180, 560 N.W.2d 246 (1997). This is particularly true when the case involves pension plans and retirement benefits.”
The trial court found that the most equitable result would be not to divide the wife’s survivorship benefit 50/50. The Court of Appeals stated,
“We cannot conclude, based on these circumstances, that the trial court’s decision constituted an erroneous exercise of discretion.”
In an unpublished decision, In re Marriage of Kelly v. Kelly, 324 Wis. 2d 583, 785 N.W. 2d 688 (Ct. App. 2010), the court found that the failure to include the husband’s pension as part of the division of the estate, but rather ordering maintenance was an erroneous abuse of discretion.
We agree with Crystal (wife) that the circuit court applied an incorrect standard in its treatment of Gary’s (husband) monthly pension payment. Steinke requires the circuit court to include these payments in the property division, subject to the statutory presumption of an equal division. To the extent that Dutchin, is consistent with Steinke on this point, Steinke controls. The court stated the following:
The distinction we apparently accepted in Dutchin between treating a pension as an asset subject to division and treating the monthly pension payments as an income stream is inconsistent with Steinke and Cook insofar as it suggests that the circuit court has the discretion not to include the pension in the property division. As already noted, Steinke makes clear that the circuit court does not have the discretion to do that, although the court may choose to divide the pension by dividing the monthly payments in a manner that takes into account the rebuttable presumption of an equal property division in Wis. Stat. 767.61 (3), Steinke, 126 Wis. 2d at 383-385, 376 N.W. 2d 389.”
The court continued:
The difference between treating monthly pension payments as an income stream that is considered when deciding on maintenance and treating them as property of the marital estate is more than semantics. As the Steinke court noted, in contrast to the statutory presumption of equal property division, there is no statutory presumption of an equal division of marital income upon divorce. Id. at 379, 376 N.W. 2d 839.
Because we conclude that Dutchin is inconsistent with Steinke and Cook insofar as it suggests that the circuit court has the discretion not to include the pension in the property division, we must follow Steinke and Cook, 208 Wis. 2d at 189, 560 N.W. 2d 246 (only the supreme court has the power to overrule, modify or withdraw language from a previous supreme court case).
In 2012, the latest year for which data is available, the older population, persons 65 years or older, numbered 43 million. This represents 13.7% of the U.S. population, about one in every seven Americans. By the year 2030, there will be about 72.1 million older persons, more than twice their number in 2000. Between 2000 and 2010, the population 65 and older increased at a rate of 15.1%, much faster than the total U.S. population at only 9.7%. By the year 2030, the 65 and older population is expected to grow to be 19% of the U.S. population. Based on this, we will be encountering more and more situations in divorce cases, where parties are already retired and receiving their monthly pension benefits. Based on the case law since 1985, the issue remains; should the courts be treating the pensions as property, presumed divided equally at the time of the divorce or rather as an income stream?
While Steinke sets the standard for treating pensions as divisible property, Dutchin clouded the issue and seemed to convey discretion with the trial courts that pensions when plan in pay status, may be considered as income and not equally divided at the time of the divorce. While Kelly is unpublished, the court is clear that the Steinke ruling, more than 28 years later, is still the law of the land; pensions are to be treated as a property right, subject to equal division at the time of the divorce, absent extraordinary circumstances.
Whether you want a plan in pay pension to be considered as income or property, may depend on which side of the case you are on; if you are the participant-spouse, there may certainly be advantages to having the pension considered as income, including the ability to deduct the payments as spousal support and the fact that the payments terminate upon the payee’s death. If you are the non-participant spouse, there are risks with taking the payments as income as opposed to property division. When the pension is considered as property, you can secure the payments with a Qualified Domestic Relations Order (QDRO), and there may be valuable survivorship benefits that are available that one would not receive if the pension is considered as income.
After reading this article, you can probably imagine that dealing with retirement pension plans is highly complex, particularly when it comes to the legal nuances of when someone is already retired and receiving their pension benefits, whether that monthly benefit should be treated as income or as property division. The failure to properly divide the pension can have serious implications as to property division and survivor rights to the pension. It is extremely important to have strong representation and experienced legal advice when dealing with retirement benefits; that is why you need an experienced divorce lawyer. That’s exactly what you get with the lawyers at Karp & Iancu, S.C..
Contact our Milwaukee law firm for determined representation in property disputes
Whether you are the alternate payee spouse and seeking to secure your 50% interest in your spouse’s pension plan, or you are the plan recipient spouse and advocating that your pension be treated as income, you need reliable legal representation. The knowledgeable and experienced attorneys at Karp & Iancu, S.C. can capably handle your property division case and all of your other divorce needs. Call us at [ln::phone] or contact us online to schedule an initial consultation.