Marriage means that two people have made a commitment to live their lives together and build a future around their relationship. Couples often devote a substantial amount of time, energy, and effort particularly with respect to future financial planning and retirement. When a marriage fails, California law says that marital property will be divided evenly. Retirement accounts and pensions are no exception to this rule. When the parties have been married for the entire duration of when a benefit was earned and vested, division of the asset is relatively simple. However, complicated issues often arise when the pension or benefit began to accrue before the parties were ever married, and continued to grow after the end of the relationship. Usually property acquired before marriage is separate property and not subject to division in a divorce under community property laws. This rule becomes considerably more nuanced and complex when it comes to pensions and similar types of retirement benefits.
The Brown formula is the rule often referred to by family lawyers and judges in California when approaching this problem. The rule comes from a 1976 case called Marriage of Brown. The "time rule" established by this case creates a method by which particular types of retirement accounts can be apportioned according to what was accrued before the marriage and after the marriage. It seeks to recognize that a spouse may have accrued benefits before the marriage that should not be divided while simultaneously recognizing the contributions during the marriage of the other spouse. By way of example, a husband began his employment 5 years before the parties' marriage, the parties then separated after 10 years of marriage, divorcing 3 years later. Under the time rule, the portion that is divisible under community property rules is the amount that accrued during the ten years the parties were married, before they separated.
There are some important caveats to this rule. First, in order for the time rule to apply, the benefit incurred must be substantially connected to the employee's time working at the company. If the benefit is more connected to particular tasks completed by the employee as an incentive or bonus program, the time rule may not apply. Second, the time rule is not connected to defining an asset as community property. Determination of an asset's nature as community or separate is governed by a completely different set of rules.
We have extensive experience with helping our clients divide retirement accounts and marital assets. Call us today at 619-800-0384 for a consultation to talk about your financial future.