Complex household asset structures may include forms of deferred compensation, as well as vested interests and unvested potential interests. In a marriage dissolution, the court has broad discretion in distributing property.
Essentially, Connecticut law authorizes the trial judge to allocate any portion or all of the estate of one litigant to the other in distributing property in a dissolution action. See, e.g. Krafick v. Krafick, 234 Conn. 783 (1995). The courts, however, recognize that the statute in this so-called “all-property” equitable distribution system does not specifically define the term, “property.” Litigants may disagree concerning whether an interest is an actual property interest or merely an expectancy that does not include a present-day right or ownership interest.
We have previously discussed trust assets and the idea that Connecticut courts generally do not invade trusts. However, reasons may exist for courts to consider potential property interests that may arise surrounding the existence of a trust. Disputes focusing on whether or not an actual property interest attaches to an item, such as pension benefits, may require focused legal analysis.
Pension Benefits Are Generally Divisible Property
Pension benefits are deemed as more than mere gratuities. See, Mickey v. Mickey, 292 Conn. 597 (2009). While they may be considered a type of intangible property, a pension benefit is a contractual right and courts generally view a vested pension benefit as property that may be divisible in divorce. Moreover, Connecticut law views unvested pension benefits as property. The underlying principle here broader than a contractual right that vesting provides.
The theory underlying pensions may include an aspect that is similar to a deferred compensation concept. Individuals take a smaller salary today, to receive the future financial security of pension benefits. A litigant’s expectant interest in participating in the pension plan may be deemed as sufficiently concrete, reasonable and justifiable for courts to find an unvested interest in the pension as a property right. The Connecticut Supreme Court distinguishes the concrete and reasonable expectancy interest found in pensions from the more speculative nature of inheritance interests. Courts have long found future potential inheritance interests as mere expectancies and not a current enforceable right.
Not All Retirement Benefits Are Akin To Deferred Compensation
It is important to note that all pension benefits are not necessarily as concrete as others. Pension benefits that provide income to the beneficiary after retirement differ from disability benefits that may be available in a pension plan. In Mickey v. Mickey, the court awarded the wife 40 percent of the husband’s retirement benefits at the time of the divorce. After the judgment was final, the husband suffered an injury and became entitled to disability benefits through his retirement benefit plan. He asked the trial court to clarify its financial order awarding 40 percent of the retirement benefits to determine whether the order included the disability benefits. He argued that the disability benefits were not akin to deferred compensation.
The supreme court analyzed not only the reasonableness of the expectancy interest in the retirement benefit, but also the nature of the expectancy interest. At the time of the divorce, the husband had no disability, and therefore no enforceable right to future disability benefits. Moreover, the court evaluated the nature of the expectancy and reasoned that a potential future interest that vests upon something such as an accident is not sufficiently concrete or reasonable. The court concluded that the husband’s interest in disability benefits at the time of divorce were too speculative in nature to constitute a right or present property interest at the time of the dissolution.
Financial instruments, future expectancies and assets cannot be grouped together in one simple box when it comes to dividing assets in a complex dissolution. Each asset, potential property interest and financial vehicle must be analyzed at their basic level to help ensure that the proper rules are applied for the purposes of property division settlement negotiations, mediation or trial.
