In a Rhode Island Divorce when you Deal with Pensions Make sure Your Client has a COLA!
October 06, 2016
Authored By: Christopher Pearsall, RI Divorce Attorney
a.k.a. " The Rhode Island Divorce Coach ℠ "
Yes, it's clearly a poor play on words but it certainly makes things more interesting when I'm writing articles.
In many divorces there are pensions or other types of retirement accounts that need to be divided. One of the often overlooked provisions in Marital Settlement Agreements or Property Settlement Agreements is the COLA or "Cost of Living Adjustment."
A good number of pensions and retirement accounts provide for adjustments in the plan for amounts that are or will be paid out in the future. These cost-of-living adjustments are built into the plan to account for ... as the words imply account for usually the increased cost of living.
It is never a mistake to put in your divorce settlement agreement a clause that makes sure that whatever part of any retirement or pension plan that you may receive in the settlement that you also receive a proportionate or pro-rata share of any cost of living adjustments that may be made by the plan.
For instance, John has a pension that he is not yet entitled to take but he and his spouse are splitting the pension 50/50 as of the date of their divorce. Whether or not the lawyer takes time to look at the pension terms, he or she should presume that there is a possibility that cost of living adjustments might be made somewhere within those terms or that a term might allow for them to be built into the plan retroactively in the future by new provisions. This is a good presumption to make because then it leads the divorce lawyer to put in that if there are any cost of living adjustments (COLAs) built into the pension plan either now or in the future that COLA's are also to be divided on a 50/50 basis.
While there may be an argument that this should not be true in every case because a spouse should only get part of what exists only at the time of the divorce, the counterargument is stronger that a Cost of Living Adjustment is applied to the entirety of the pension funds to account for the cost of living for whoever were to receive the funds.
Thus, if the cost of living goes up for the person who is the participant in the plan then it likewise goes up for the person who receives the other 50 percent of the pension. If only the participant received the cost of living adjustment, then the participant in the pension plan receives a windfall that was meant to be applied to 100% of the monies in the pension. So it only makes sense that the COLA should follow the money that it's supposed to offset. So if the COLA relates to say the entire $2,000 per month to be paid out because the economy has changed and another $200 is awarded as a COLA on that $2,000, then it only makes sense that $100 goes to the original participant in the pension plan because that's the amount that relates to the $1,000 the participant received. Then the other $100 from the COLA should logically and reasonably go to the ex-spouse who now gets the other $1,000 of the pension funds each month.
The significance is that over time those cost of living adjustments (COLAs) might amount to a significant amount of money. Does the non-participant's lawyer have to know every term of the pension plan in order to account for this...absolutely not. All the lawyer needs to do is make sure there is a COLA Clause in the marital settlement agreement to protect his or her client.
You need to have that COLA Clause or cost of living adjustments might add up substantially depending upon the number of years the participant in the pension may receive payments.
So when it comes to pensions, it's always good to pause and make sure your lawyer has taken time for a COLA .... clause.
As I've said before, not all lawyers are the same. A lawyer who routinely practices Rhode Island divorce and family law can mean all the difference between a lawyer who may only do 5 or 10 divorces a year.
Attorney Christopher A. Pearsall .... making a difference by Caring About People in their divorces for over 16 years.