Do you or your spouse work for the government, belong to a union, or are otherwise in line to receive a pension as a form of retirement income? Pensions were formerly the most common form of retirement income that a person would receive from their employer. Ask your parents or your grandparents about pensions and how common they were. I'm sure they will tell you that they or a family member received benefits of this sort. Pensions were a defined benefit: while it was not an account you could look to every day to verify the exact balance, you knew that you were going to receive a specific amount of money each month when you retired.
For generations of workers who were happy to have a consistent income while they worked and a consistent income after retirement, this was an appealing plan. However, towards the end of the 1970s and into the 1980s a change occurred where pensions became less and less common in the private sector of the economy. 401(k) plans, as well as individual retirement accounts (IRA), became much more the norm for private-sector employees to use as retirement vehicles. Pensions were no longer seen as the expected method to save for retirement. Pensions are heavily regulated, as well. This means that the government will force pension plan managers to invest the money within the pension very conservatively. Modest returns and an uncertain amount of money in the future have led pensions to become less common as a result.
When we talk about saving for retirement I think a lot of people’s eyes glaze over. Many of you reading this blog post may not be anywhere near retirement age. As a result, the last thing on your mind may be what you are going to do for income when you stop working. Getting through the workweek, saving for your kids' college educations, and saving up for a trip or a new car may be more appealing to you at the moment. When we talk about something that could occur in thirty, forty, or fifty years you understandably may think that you have plenty of time to prepare for life after work.
On the other hand, you may be a person who is older and closer to retirement. However, it could also be the case that you have not been as diligent about saving for retirement as perhaps you had planned on being. Your thirties and forties have passed you by without much in the way of progress regarding your retirement savings being accomplished. Life got in the way. Now when you hear the subject of retirement come up it is the last thing that you want to think about. Avoiding the discussion now that you are nearing retirement age seems just fine to you. You'll do what you can to save for retirement but you don’t want to dwell on the subject.
Do any of these circumstances sound familiar to you? If so, then you should probably keep reading today's blog post. Even if you are not where you want to be with your retirement savings that do not mean that you have to eat ramen noodles at every meal in your golden years. If you establish a plan, live intentionally, and sacrifice enough you can do what it takes to turn your retirement savings into something that you are proud of. Money isn't everything but it is a tool. A tool to help others, change your family tree, and live a purposeful life. What you do with your money is up to you. However, to have that sort of autonomy you must first have some money to be concerned with.
With all of that said, I wanted to spend some time today discussing an important topic related to retirement savings. Post-separation retirement pay is not a topic that I think we have ever discussed here on the blog for the Law Office of Bryan Fagan. We have written extensively about the subject of retirement savings and divorce, but nothing about this specific topic. However, with many people leaving the workforce, changing jobs, and making the decision to retire early this period of transition leads me to believe that some of you out there may be interested in learning about this topic and how it interacts with Texas divorces.
Divorce cases in Texas require an experienced hand to help you accomplish your goals. While no law says you have to have an attorney representing you in a divorce, I sure believe that it can be helpful. In many cases, I would argue that having an experienced attorney by your side is necessary- all things considered. If at the end of today’s blog post you have questions about what you read here please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week in person, over the phone, and via video. Retirement savings oftentimes play a crucial role in a divorce case. Don’t put yourself in a position of weakness because you have no guide to help you make decisions that could impact you and your family for years to come.
What are retirement savings and severance pay about a Texas divorce?
As we have just discussed, retirement savings play a crucial role in many divorce cases. If you have been contributing to a retirement plan for some time then you absolutely will want to take advantage of the information provided in today’s blog post. Severance pay is paid by a company to you upon termination from employment. You see severance pay occur in circumstances where you worked for a company for “X” amount of years and received money upon being let go from employment. Corporate downsizing, the shifting of jobs and roles overseas, and a myriad of other reasons could find you receiving money in the form of severance from your employer.
The question that we need to ask ourselves is how does severance pay influence a Texas divorce? Is severance pay going to be a factor in your divorce? These are the relevant questions that we need to answer before the end of today’s blog post. Across the country, many states have not issued case law regarding this subject. Case law refers to appellate courts issuing decisions that instruct lower courts (like a divorce court for your home county) on how to rule when it comes to certain issues. The topic of severance pay as it relates to a divorce is not a commonly litigated subject, it would seem.
In those states (including Texas) that have issued rulings on severance pay, the main issue that bears mention here is that severance pay can be classified as being part of the marital estate (community property) depends upon whether the severance pay was paid to you as a form of compensation for your future loss of employment or is supposed to pay you for past performance while you were married and working for the employer in question. Does this money represent payments that would be counted among your community estate or does the money properly fall into your separate estate? The answer to this question will determine whether the severance will be divided in your divorce or whether it is yours to keep and not subject to division.
What do the majority of states say regarding the community versus the separate nature of severance pay in a divorce?
Most states that I've looked at this issue have determined that severance pay is a kind of compensation for future economic distress that is caused by the lack of employment. Severance pay, then, is supposed to be able to ease the burden of finding a new job after losing a job that you've held for some time additionally, because severance pay comes about at a time when a person is likely not expecting to be let go from their place of employment the severance pay is designed also to compensate a person for and unforeseen disruption to their economic livelihoods. As a result, the argument here is that because severance pay is to assist in caring for future economic distress that it will be classified as separate property rather than Community property.
At times the severance package could indeed be based on the length of time that you have worked with your company. However, when he received this kind of severance package it would be based upon you are having been terminated from employment by the company. As a result, it can be considered that only expecting to be let go from your job does not confer any value of the severance package to you until you are let go. Courts across the nation have concluded that if you are not let go from your job during your marriage and the severance pay does not become finalized during the marriage then the severance is properly classified as separate property.
The counterargument to this would be that you have developed a history with this company throughout many years period those many years also word concurrent with your marriage. With that said because the economic benefit was earned during your marriage and the severance is more in line with payment for past work, the severance should be classified as Community property no matter when you get it or when it is confirmed as an amount to be paid to you. This will be true, proponents of this argument would tell you, even if the severance pay is not provided to you until after your divorce is over with.
How to value severance pay?
Until and unless you are actually let go from your place of employment and then offered a severance package then the severance pay has no value that can be calculated. The number would purely be hypothetical and not something that would be of tangible value that could be of interest to you or your spouse in the context of a divorce. It is only until your severance pay is received by you that it has any type of value. We see this in situations where a severance package is offered to you in writing such as if you were offered a lump sum payment or if you can calculate it based on a payment schedule as you would see with an annuity.
When it comes to distributing a severance package something called the deferred distribution method is the most appropriate way to do so. This method will help to guarantee that your spouse does not receive any money upon divorce for any property that you do not get as a result of the severance. This method seeks to avoid situations where you and your spouse negotiate over a severance package that is not yet earned or even offered.
What does the state of Texas have to say on this subject?
As we have already discussed, different states have different positions on this topic. For the most part, Texas has had case law in place for more than forty years in some cases on this subject. This means that the law is fairly well established. Please bear in mind that what I am about to share with you is not intended to be an exhaustive list of case law in Texas on the subject of severance pay. It is also not a prediction or a guarantee of what would happen in your divorce with issues like this.
In a case called Whorrall v. Whorrall, the court decided that a lump sum payment of severance pay made on the husband’s early retirement was his separate property. The reasoning that the court provided was that because the company did not have to pay the severance from a contractual perspective it became discretionary. As a result, it would not be possible to argue that the severance was paid as a result of past work during the marriage. Therefore, the severance was properly classified as separate property. The court pointed out that this severance was not a "reward" to a productive employee who was now retiring. Rather, the severance was more in line with an enticement to propel an unproductive employee out the door faster and sooner.
On the other hand, the Texas Supreme Court in 1979 declared a form of military retirement benefits to be part of the community estate. In Perez v. Perez, military readjustment benefits were treated the same as military retirement benefits. Since these military retirement benefits were earned during the marriage they were properly classified as community property in this divorce case.
What does this mean for you and your divorce?
It would seem that you would need to figure out the spirit in which the severance was paid to have a better idea of whether the severance will be classified as separate or community property. Did you receive severance as a "reward" for past performance? Did you receive the severance to encourage you to leave a place of business due to poor performance? That distinction alone could make a tremendous difference in making this determination.
Remember that in a divorce you are not necessarily bound to follow the laws in Texas on community property exactly as they are written in the Texas Family Code or have been decided by appellate court judges. Rather, you and your spouse have an opportunity to decide these issues for yourselves, based on your thoughts, opinions, and circumstances. What you need to figure out at this stage is how to best position yourself to chart your course and determine your future as it pertains to divorce.
If you're asking me, I think that having an experienced family law attorney by your side is the best way to position yourself well regarding this or any other subject that you would encounter in your divorce. The difference between having an attorney in your divorce and not having an attorney can be substantial. We have just walked through one particular issue of a divorce that may be relevant in your life. Consider the fact that there will be many other factors to consider in your divorce that are even more intricate and specific than the issue of severance pay and Community property.
If you have children under the age of 18, owner home, have retirement benefits in play, or are otherwise concerned with this subject or any other you should very seriously consider hiring an experienced family law attorney for your case. Having an attorney means that you will have someone to ask questions of, receive guidance, and feel more comfortable and confident in the decisions that you make. There are no guarantees in a family law case. However, having an attorney by your side can be the best indicator of the future success of a case.
Questions about the material contained in today's blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today's blog post please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultation six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as to learn more about how your family circumstances may be impacted by the filing of a divorce or child custody case.