Whether Retirement Benefits are Vested Irrelevant for Determining Separate or Marital

Cohen v. Cohen, 937 S.W.2d 823 (Tenn. 1996).

Whether Retirement Benefits are Vested Irrelevant for Determining Whether Separate or Marital

Cohen is widely cited for its holding that  “the value of unvested retirement plans and increased equity in real separate property accruing during the marriage constitute marital property.”  It reached this conclusion rather quickly by noting that marital property is defined as “all” property acquired during the marriage.  But the husband argued that since the statute specifically defined vested benefits as marital property, the legislature must have intended to exclude unvested benefits from the definition.

The court was therefore called upon to flesh out its holding.  It first made clear that “[o]nly the portion of retirement benefits accrued during the marriage are marital property subject to equitable division.”  Id. at 830.  It also made clear that this was true “even though the non-employee spouse did not contribute to the increase in their value.” Id.

When offering reasoning against the argument that unvested retirement assets are speculative and contingent upon actually being received by the earning spouse and thus should not be subject to division as a marital asset, the Court commented: “Even ‘vested’ retirements may be contingent upon the employee’s living until the age of retirement. Contingencies should be considered on the issue of method of distribution, perhaps, but not on the determination of classification.” Cohen, 937 S.W.2d at 830. This means even unvested pension benefits must be considered and divided as part of the divorce.

The valuation of the benefits must be made at a date as near as possible to the divorce, and when making this valuation, the court should consider entire classes of assets.  If one asset has increased in value and another decreased, the court should consider the net increase.

This post is part of a series, Appreciation of Separate Property: The Forensic Accountant’s Full Employment Act.