Many Americans have jobs that offer various post-retirement benefits (PRBs), including healthcare benefits, accumulated sick leave and paid time off benefits. Several states have addressed the valuable economic rights to these assets that were created during the marriage. Many states allow for specific valuation and division of the economic value of such assets in both equitable distribution and community property division. Other states decline to recognize such rights. To date, there are no Pennsylvania appellate court opinions regarding the valuation and divisibility, or even consideration of, such economic rights in the context of the equitable distribution of a marital estate.
Numerous employers in Pennsylvania, some of the largest, in fact, offer their employees PRBs. These employers span both the private and public sector and often include governmental and educational institutions, medical institutions and financial service organizations.
It is important to note that, in many cases, although the marital estate may not be significant in value terms, the value of such benefits could be worth as much as or even more than the remainder of the marital estate. In fact, such benefits are not limited to senior executives and, in many cases, are granted to employees in non-executive positions, including government workers, law enforcement officers, school teachers and union workers. Therefore, these benefits have the potential to be very lucrative to one spouse to the exclusion of the other.
Assume a couple, both age 55 decide to divorce after 35 years of marriage and upon the husband's retirement from his employer of 30 years. The marital estate includes the proceeds from the sale of the marital residence ($450,000), cash and investments ($100,000), and the husband's defined benefit obligation plan ($750,000). The estate is divided 50/50, with each spouse getting assets valued at $650,000, without considering the value of the husband's PRBs.
Using the example above, the PRB subsidy is worth $150,000 on a tax-free basis to the husband. Were he to retain this economic benefit without an offset to the wife, the value of the marital estate would increase to $1.45 million, with the husband receiving assets and economic rights valued at $800,000, which represents 55 percent of the marital estate. Thus, the wife in this example would be deprived of the benefit of an economic right accumulated over this long-term marriage and would receive less than an equal share of the overall marital estate.
In this scenario, the failure to include the value of the PRB, representing approximately 10 percent of the marital estate, causes an inequitable result for one spouse at the expense of the other.
Although Pennsylvania appellate courts have not yet considered whether PRBs will be determined to be marital assets subject to division between the parties, many other states have addressed this issue. With regard to post-retirement health benefits, other jurisdictions have looked at several issues, most notably whether the benefits were vested at the time of the divorce and whether marital funds, in the form of income or assets, were used to acquire such benefits. As to accumulated sick leave or paid time off benefits, jurisdictions have reviewed how other types of deferred compensation, such as pensions and stock options, have been treated in that jurisdiction.
If, or perhaps when, the issue of PRBs is eventually considered by the Pennsylvania appellate courts, the impact on divorce matters could be significant. Family law attorneys and financial experts working with divorce litigants should investigate access to PRBs, accumulated paid time off, and other forms of economic rights that were created during the marriage as a result of the employment arrangements of the spouses.