The Maryland Court of Appeals has been busy this summer with family law opinions. I previously posted about the Court’s decision regarding “De Facto Parents”, as well as, its decision regarding joint legal custody. Earlier this week, the Court of Appeals, made another family law ruling adding an additional factor for the Circuit Courts (trial courts) to consider when determining what – if any- monetary award should be provided to a spouse in a divorce proceeding. This ruling comes from the Court’s decision in Jackson v. Jackson.
The Court of Appeals ruled that since Maryland is preempted by federal law from directly dividing Social Security benefits or indirectly dividing those benefits by way of an offset. This prohibition also prevents a judge from offsetting the hypothetical value of Social Security benefits within the Civil Service Retirement System (CSRS) pension when determining the distribution of marital property in a divorce proceeding. A trial judge is required to consider the parties’ actual or anticipated Social Security benefits when determining whether to grant a monetary award to adjust the equities and rights of the parties in marital property.
In this case, the Court of Appeals addressed whether a trial judge has the authority to consider Social Security benefits, and whether a judge may offset those benefits against the marital portion of a CSRS pension when determining the division of marital property (In 1920 Congress enacted the Civil Service Retirement Act, which established the CSRS for federal employees (now FERS). A defining characteristic of the CSRS program is that the employee does not participate in the Social Security program. Because the employer does not withhold Social Security taxes from the CSRS employee’s salary, upon retirement the employee will receive a larger pension in lieu of Social Security benefits. The employee may qualify for Social Security benefits, because of previous employment in the private sector.
Under Maryland law, in a divorce proceeding, retirement plans are considered marital property subject to division, and Social Security benefits are considered non-marital property, which are not subject to division. However, in this matter, the Appellant argued that the marital portion of the CSRS pension should be reduced in order to reflect an offset. The offset, he stated, is an implicit embedded Social Security element representing the amount of Social Security benefits the appellant would have been entitled to had he not participated in the CSRS. By accounting for the offset, the appellee’s share of the marital portion of the CSRS pension would be reduced, and, in Appellant’s opinion, this would result in a more equitable distribution of the marital assets.
The Circuit Court rejected Appellant’s offset argument, and ordered the retirement plans be divided so that each party would receive 50% of the marital share of the other party’s retirement plan. The Court of Appeals agreed with the Circuit’s court finding that under the doctrine of federal preemption, a trial judge may not offset the value of hypothetical Social Security benefits against the marital share of a CSRS pension when dividing marital assets in a divorce proceeding. However, the Court of Appeals vacated the judgment of the Circuit Court, and remand the case for that court to take into consideration the parties’ anticipated Social Security benefits.
The court’s rationale for said decision was, in part, that “[a]lthough trial courts are preempted from subjecting Social Security Benefits to valuation for the purpose of direct or indirect offset of those benefits, federal law does not prevent courts from generally considering a party’s participation in the Social Security program. A general consideration is permissible, because it does not involve the direct division of Social Security benefits or the indirect division of those benefits by way of an offset.”
The Court supported it’s decision by quoting from the Court of Special Appeals decision in Melrod v. Melrod (1990), that although the court does not have to “evaluate non-marital property in the same manner as marital property,” that it is enough for the court to be “generally aware of the relative wealth of the parties, in order that it can be determined whether it would be equitable to award a greater share of marital property,” if their overall wealth (combining marital and non-marital property) is less than the other spouse.
It should be noted, however, even with this ruling, the courts are not to assign a lump sum value to Social Security benefits and either transfer or offset those benefits when exercising its authority to divide marital property. “A fair and equitable division by a trial court does not require mathematical precision, but rather fairness, based upon a consideration of all the circumstances of the marriage, both past and present, and an evaluation of the future needs of parties.”
Lastly, the court reminded its readers that in the end it is the trial judge who has the ultimate decision whether to grant a monetary award, which said decision is generally within the sound discretion of the trial court, after considering all the factors pursuant to the Family Law Article of Maryland. In turn, this decision basically just required the trial court to make it clear in the record that the judge hearing the case considered the anticipated social security benefits of the parties.
Please feel free to contact to discuss your case and learn more about how this new law might impact your case.