What is Marital/Community Part of a Pension?
In Illinois, and in most courts through the country, a divorce judge only has jurisdiction over marital or community property. This means that a judge does not have the authority to divide individual or non-marital assets. Of course, it is the Judge that decides what is and is not marital property. The Judge looks to statutes and caselaw to make these determinations.
Primarily, as it relates to the pension and retirement plans, income earned during the marriage is marital income. Whatever is acquired with that income is marital. If you have a pension plan from before your marriage, income withheld & deposited into the pension during your marriage is marital. Funds you had in the plan before the marriage are your individual and nonmarital property.
This strikes most people as relatively fair. Upon divorce, your spouse receives half or so or the marital portion of your pension, half of what was deposited during the marriage, and half of the growth (due to market fluctuations) on those deposits.
However, for pension plans, many states use a formula, known as the coverture formula to divide pension benefits in divorce, and this formula calculates the marital portion using the final monthly benefit amount. If you divorced prior to retirement, the final benefit amount is in part due to work you did after (and before) the marriage.
The formula multiplies the final benefit by a fraction, the numerator of which is the time/credit earned during the marriage and the denominator of which is the time/credit earned in total. As one works after the divorce, the denominator increases, while the numerator remains unchanged, resulting in a smaller and smaller percentage, but that percentage is being multiplied by an ever increasing number: your final benefit grows as you work.
The reasons for this are a few, including that the former spouse should get something of that higher earning power in later years as it is only made possible by marital efforts in work performed during the marriage. Of course, the coverture formula also includes time/credit earned before the marriage, thus whether it is fair or unfair to rely upon it depends on the specifics of the case.
In order to not apply the coverture formula, and cut off the marital portion as of the date of divorce, the Judgment must be clear in stating that the coverture formula will not be used and the marital portion will be calculated by assuming the member of the Plan retired at the time of divorce. Whether or not the Alternate Payee receives cost of living adjustments should also be addressed. Anything but unequivocal language will result in the current default position of relying upon the coverture formula.