Tennessee State and Local Government Pensions Now Divisible in Divorce Due to New Law

Municipal employees and state teachers pensions now must be divisible in divorce according to a 2015 Tennessee divorce law change.  In general, this mostly affects city, county, local government employees.  An important piece of Tennessee divorce legislation affecting the division of police, firefighter, and teacher pensions was signed into law by Governor Haslam.

TN Divorce Legislation Changes Division of Police, Firefighter and Teacher Pensions

State of Tennessee Public Chapter 440 amends T.C.A. § 26-2-105. Under the new law, those local governments that establish and maintain a qualified retirement plan for employees, and which maintain a qualified plan administrator, must honor a claim from an employee-participant’s former spouse with a Qualified Domestic Relations Order (QDRO). A qualified retirement plan is any retirement or pension plan that is qualified under IRC § 401 or § 403. The QDRO is a court order implementing division of the retirement plan in a divorce creating a “separate interest” – essentially dividing the one pension amount due into two separate accounts.

An attorney and Certified Public Accountant, Miles Mason, Sr., points out that, because government pensions are now divisible in Tennessee divorce, this means that firefighter, police, and teacher pensions are now divisible assets if those pensions are marital property. Prior to this law, if pensions were not divisible into separate interests, then divorcing spouses had to consider an off-set or payment over time method called “deferred jurisdiction.” In almost all situations, the creation of a separate interest is the most preferable way to handle the division.

Consider this example:  John and Mary get married in 2004. In 2005, John joins the Germantown, Tennessee, police force. John’s police pension was funded after the marriage and is marital property. In their divorce, Mary is awarded 50% of John’s police pension as set forth in the court’s QDRO. The Germantown qualified plan administrator, upon receiving the QDRO, is required to make distributions to both John (the plan participant) and Mary (according to the QDRO). Mary does not need to seek payment directly from John. Instead, her share of the pension will be sent directly to her by the pension plan administrator.

As of July 1, 2015, when Public Chapter 440 takes effect, government employees, firefighters, police, and teachers who divorce will find their pensions divided in divorce absent an agreement to the contrary. To find out how the new law applies to your retirement, consult an experienced Tennessee divorce lawyer about your specific circumstances.

Retirement Plans in a Marital Dissolution Agreement

If a retirement plan, government or private, will be divided in your divorce, or if you have concerns about how the appreciated value of your retirement account will be awarded, discuss the possibility of reaching a settlement and completing a Marital Dissolution Agreement (MDA) with your lawyer. Among other things, an MDA could serve as a vehicle to keep both spouses’ pensions intact or fair, just, and reasonable in a division of retirement assets.

State of Tennessee Public Chapter 440 was one of three acts passed in 2015 that directly affect parents and spouses in family law cases. Compromise and settlement of child support arrearages is now possible with the passage of Public Chapter No. 200. With regard to certain premarital retirement plans and employment fringe benefits, Public Chapter No. 202 will have a substantial impact on property division in Tennessee divorce.

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