Awarding Retirement Plans in Alabama Divorce
By now you’re probably familiar with the Alabama statute governing division of retirement plans in divorce, Ala. Code Â§ 30-2-51(b). Is there ever a time when a retirement plan should be divided not under Â§ 30-2-51(b) but under the general provision for marital property division, Â§ 30-2-51(a)? In Smith v. Smith, Case No. 2040310 (Ala. Civ. App. December 9, 2005), the Alabama Court of Civil Appeals says no.
Here’s the text of Ala. Code Â§ 30-2-51:
Â§ 30-2-51. Allowances to spouses at time divorce granted
(a) If either spouse has no separate estate or if it is insufficient for the maintenance of a spouse, the judge, upon granting a divorce, at his or her discretion, may order to a spouse an allowance out of the estate of the other spouse, taking into consideration the value thereof and the condition of the spouse’s family. Notwithstanding the foregoing, the judge may not take into consideration any property acquired prior to the marriage of the parties or by inheritance or gift unless the judge finds from the evidence that the property, or income produced by the property, has been used regularly for the common benefit of the parties during their marriage.
(b) The judge, at his or her discretion, may include in the estate of either spouse the present value of any future or current retirement benefits, that a spouse may have a vested interest in or may be receiving on the date the action for divorce is filed, provided that the following conditions are met:
(1) The parties have been married for a period of 10 years during which the retirement was being accumulated.
(2) The court shall not include in the estate the value of any retirement benefits acquired prior to the marriage including any interest or appreciation of the benefits.
(3) The total amount of the retirement benefits payable to the non-covered spouse shall not exceed 50 percent of the retirement benefits that may be considered by the court.
(c) If the court finds in its discretion that any of the covered spouse’s retirement benefits should be distributed to the non-covered spouse, the amount is not payable to the non-covered spouse until the covered spouse begins to receive his or her retirement benefits or reaches the age of 65 years, unless both parties agree to a lump sum settlement of the non-covered spouse’s benefits payable in one or more installments.
In the Smith case, the husband had an IRA that consisted entirely of premarriage retirement benefits and the interest they had generated.
Before the divorce complaint was filed, the husband liquidated this IRA and transferred the proceeds to his attorney’s trust account. Because of the husband’s action, the IRA did not exist when the divorce complaint was filed and was therefore not covered by Â§ 30-2-51(b).
Apparently based on the wife’s argument at trial that the husband had earlier used some of the proceeds from this IRA for the benefit of the marriage, the trial court ordered an equal division of the funds from the IRA held in trust by the husband’s attorney. The wife appealed on several issues, and the husband appealed on several issues, including this one.
The Appeals Court looked to the plain language of the statute. It noted that Â§ 30-2-51(b) says nothing about considering retirement benefits as marital property based on the use of the benefits of the marriage. Instead, said the Appeals Court, the disposition of retirement benefits depends entirely on the vesting of the benefits, the length of the marriage, and when the benefits were accumulated.
The Appeals Court also said that the interpretation urged by the wife would lead to irrational results “that we cannot conclude were intended by our legislature.” The Appeals Court remanded the case to the trial court for a new trial on the issue of the division of the husband’s retirement benefits.
Separately, the Appeals Court found deficient the trial court’s division of certain of the husband’s retirement plans because of insufficient evidentiary foundation. Specifically, the Appeals Court said that the trial court had divided plans to which the husband had contributed prior to the marriage, during the marriage, and after the complaint for divorce was filed, all without any evidence from the wife as to the value of the plans at the time of the marriage or at the time the divorce complaint was filed. “In other words, the [trial] court’s retirement-benefits award contains premarriage retirement benefits, and income and appreciation thereon, and postcomplaint retirement benefits, and income and appreciation thereon, in violation of Â§ 30-2-51(b).”