Social Security is Not Community Property

H and W married in 1994. They separated in 2010. H is an attorney in private practice. W is also an attorney, and is an employee of a California county district attorney’s office. Throughout their entire marriage, H has contributed to Social Security through mandatory payroll deductions. However, as a local government employee, W mandatorily contributed to her civil service pension and did not pay make social security contributions. Under her pension plan, she is prohibited from contributing to social security. Further, under the federal Windfall Elimination Provision of the Social Security Act, 42 U.S.C. § 415(a)(7), and the Government Pension Offset, 20 C.F.R. § 404.408a(a), W is barred from receiving Social Security benefits, both individually and as the spouse of someone who contributed to Social Security.

When they divorced, they entered into agreements regarding child custody/visitation and distribution of their community property, but they could not agree on the fair distribution of future retirement benefits. California law considers W’s contributions to her retirement plan as community property with her spouse entitled to his one-half share. Social Security, however, considers payments to its program as property of the contributor and not community property, even though California considers income accrued during marriage as community property. Thus, H was entitled to one-half of W’s retirement program, but W was not entitled to one-half of H’s retirement program; a very unfair result.

Because of the unfair result, W petitioned the family court to provide for an equitable (fair) distribution of their future retirement benefits. She suggested the court either: “…(a) reimburse the community estate for the amount of Social Security contributions withheld from H’s pay, and then dividing the assets, (b) allocating a portion of the civil service benefits to W as separate property based on the present value of the Social Security benefits she would have accumulated had she been a Social Security participant, or (c) consider the present value of H’s Social Security benefits when dividing the civil service benefits to ensure the parties received roughly equal retirement benefits…” The court sided with H, determining that Social Security contributions were not community property and W was not entitled to any benefits derived from them. The court also held that W’s contributions to her civil service pension plan were community property, and H was entitled to his one-half community interest. The court also held, “…“Thus, whether the result is inequitable or not, this court cannot adjust the division of [W’s civil service] benefits or deviate from the requirement of equal division…” because it was mandated by federal law.

W appealed.

The Appellate Court agreed with the trial court; stating H and W never had the option to spend W’s Social Security withholdings in any way other than on Social Security contributions because they were withheld directly from his income as required by federal law. Therefore, “[H] never ‘acquired’ those funds, and they never became community property.”

The Appellate Court did suggest, however, if the California state legislature wanted to, they could change the law to allow for this disparity like other states had done.

Categories: Divorce, Property Division
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