Typically, when a separated or separating spouse contacts me to negotiate a separation agreement, I suggest working towards reaching an agreement before I file an action to either approve the agreement or to obtain a separate maintenance order if the parties cannot come to an agreement. However when my client has an employee pension or retirement, whether vested or unvested, that is continuing to accrue, it is often advisable to file first and then negotiate. Doing so reduces the coverture fraction of the pension that the other spouse is entitled to as part of equitable distribution.
S.C. Code § 20-3-630 (A) creates a definition (with some exceptions) of “marital property” as “all real and personal property which has been acquired by the parties during the marriage and which is owned as of the date of filing or commencement of marital litigation…” Thus, generally, property acquired after the date of filing marital litigation does not become marital property. Case law sometimes refers to the period of time between the date of marriage and the date of filing as the coverture period. See e.g., Covington v. Covington, 306 S.C. 473, 412 S.E.2d 455 (Ct.App.1991) . The coverture fraction is the amount of a spouse’s retirement that is subject to equitable distribution as marital property. The denominator of this fraction is the amount of time the spouse was employed in a position contributing to the pension or retirement. The numerator is the amount of time the spouse was employed in a position contributing to the pension or retirement between the date of the parties’ marriage and the date of filing.
The sooner one files marital litigation, the lower the numerator and the less of one’s pension or retirement that is subject to equitable distribution. Allowing prolonged negotiations without filing marital litigation increases the other spouse’s entitlement to one’s retirement. This is especially pronounced in government or military retirements in which one can “retire” after as little as 20 years of service and receive a pension immediately upon retirement. Allowing negotiations to drag for a year can lead to the other spouse obtaining an extra 2.5% of a 20 year retirement. On a military pension of $2,000.00 a month, this results in an extra $50.00 per month ($600.00 per year) for life.
For spouses whose current employment contributes towards a pension or retirement plan, filing a marital dissolution action as soon as the parties separate reduces the incentive for the other spouse to drag out negotiations and increases the amount of one’s client’s retirement that he or she can expect to keep.
I strongly believe that lawyers should file the same day they get the case or the next day. Even if there is a settlement, it must be approved by the family court, which means there must be a case. Admittedly there may be a slight advantage to delay when the other spouse is contributing to a retirment and my client is not, which is the reverse of your example; however, I think that is offset by the problems that arise when filing is delayed. For example, property purchased after the separation but before filing is sticky in that the before filing creates a presumption of marital but marital funds may not have been used and there is a fight over contributions to that property. Also, the other side may dispose of property more easily prior to filing because there is no marital property until marital litigation is filed. “Shoot first and ask questions later.”
Thank you, Mr. Gregory, for sharing this useful information.
Cheers
Can the coverature fraction be used to calculate marital and separate property in a 401(k) or IRA?