COA: Deferred pension distribution not an error, but trial court should’ve protected wife’s portion until ex’s retirement

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A trial court did not err in deferring the distribution of a man’s pension to his ex-wife until he retires, but it did err in failing to protect the ex-wife’s portion of the pension, the Court of Appeals of Indiana has ruled.

Tabetha and Shawn Smith separated in 2016 and began divorce proceedings four years later. Shawn worked in public education, allowing him to participate in the Indiana Public Retirement System pension, which became the largest asset in the marital estate.

Shawn, who was 52 when divorce proceedings began, did not have plans for immediate retirement. He proposed a monthly pension payment of $2,602.70 to Tabetha when he retired, calculated by an expert based on a retirement age of 62 and an effective tax rate of 22%.

For her part, Tabetha proposed a 60/40 split of the state in her favor. She sought an equalization payment of $1.05 million based upon the value of the pension if Shawn retired at 55, payable by the transfer of annuities plus $3,000 a month for 30 years. Also, she asked for Shawn to name her as the beneficiary on his pension as well as on a $500,000 life insurance policy.

The Marion Superior Court ultimately ruled that the marital estate should be divided as described on Shawn’s balance sheet, with him receiving all his retirement accounts. The court ordered for the division of the pension when Shawn retires, noting that he “is not in a financial position … to pay an immediate cash offset to Wife.”

All told, Tabetha would receive a sum equivalent of 57% of the estate.

Tabetha appealed, arguing the trial court erred by conditioning the division of the marital estate on Shawn’s future, unknown retirement date; made unsupported findings that led to the erroneous conclusion that Shawn could delay his payments to her until he retired; and erred by applying a speculative tax rate to his pension.

The Court of Appeals partially affirmed in Tabetha Smith v. Shawn Smith, 21A-DC-2820, finding no error as to the distribution deferral or tax rate.

“We conclude that, overall, the circumstances here weigh in favor of the deferred distribution method,” Judge Elizabeth Tavitas wrote. “Although the trial court here could have chosen to use the immediate offset method or a combination of the two methods, it certainly was not required to, and the use of the deferred distribution method was not an abuse of discretion.

“The trial court determined the value of Husband’s Pension at retirement age of sixty-two and rejected Wife’s request to make cash equalization payments prior to retirement,” Tavitas continued. “This was within the trial court’s discretion.”

However, the COA found that the trial court did err in failing to award either survivor’s benefits or protection of Tabetha’s portion of the pension benefits through other means, such as life insurance.

Specifically, it noted that although Tabetha was awarded a portion of the pension, her ability to collect that amount is dependent upon their lifespans.

“The trial court specifically ordered that, if Husband dies, Wife is not to receive any payments thereafter,” Tavitas wrote. “The trial court, thus, has placed a value of Wife’s portion at more than $500,000.00 yet, without evidence to support the findings, ordered that Wife cannot receive benefits after Husband’s death.

“On the other hand, if Wife dies, Husband receives the entire Pension benefit,” she continued. “This is a quagmire that is not easily resolved.”

The appellate court therefore reversed in part and remanded for the trial court to hear evidence on the survivor’s benefits issue.

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