By Divorce lawyer, Cordell & Cordell
A client recently came to me for financial advice on divorce concerning his wife perhaps trying to shield assets through a Social Security Offset.
A Social Security Offset is a reduction in the value of pension benefits subject to equitable distribution in your divorce due to an adjustment based upon hypothetical or actual Social Security benefits.
Under federal law, Social Security benefits are not considered marital assets and therefore are not subject to distribution in divorce proceedings.
Some government employees do not pay into Social Security, but instead pay in to another form of government pension plan.
In essence, the Social Security Offset allows your wife to substitute the money she is paying into a pension plan for what she would be paying into Social Security, and therefore, shield it from division in your divorce.
Let’s use an example of a spouse who says your Social Security Offset cancels her pension and she is entitled to half of your retirement funds.
Say your wife has $100,000 in her State Employee Retirement System (SERS) pension and you have a combined $200,000 in your IRA and 401(k).
Presumably, she has paid into her SERS pension and not Social Security. She is trying to reduce the amount of the divisible balance of her SERS pension by the amount of Social Security she would have paid, and that would be protected from division in your divorce.
Essentially, she is claiming that you don’t have a right to her SERS pension because it is protected by the offset.
Since you two have a combined $300,000 in retirement accounts, in a straight equitable division you would each get $150,000.
Your wife, however, is claiming that the offset essentially erases her pension and that yours is the only one up for division.
Before you sign on to any agreement that foregoes your right to her pension, you must be absolutely sure that the offset is legitimate and applicable. In short, you should proceed very carefully.
There are very important factors to consider when addressing a Social Security Offset.
First, your lawyer should ensure that the offset is legitimate. You need to make sure that your wife isn’t trying to “double dip” by taking the offset when she’s actually paying in to Social Security as well.
If she’s paying into Social Security, those benefits are protected from division; she can’t then also try and take the offset on her SERS pension.
Next, the amount of the offset needs to be determined so that your wife is not allowed to take more than what she’s due. The valuation of the offset will depend on whether or not the offset is immediate or a deferred distribution, as outlined by state and/or case law.
Social Security is the government’s version of a defined benefit plan. A defined benefit plan promises to pay a specific benefit at retirement.
When a party’s rights under a defined benefit plan are valued for equitable distribution in divorce, the benefits must be given a present value. The present value is used in determining the correct credit under an immediate offset division of assets. In some cases this value must be determined by an actuary.
If you find yourself in this complicated situation, you need to seek legal advice on divorce from an attorney who is well versed in the valuation and division of pensions.
To set up an appointment with a Cordell & Cordell mens divorce attorney, including Christian D. Barnard, an Associate Attorney in the Tulsa, Oklahoma, office, please contact Cordell & Cordell.
