Social Security, RR Benefits, & Property Division
Illinois divorce courts may not consider Social Security benefits for ANY reason in ANY case. The court cannot divide Social Security benefits, it cannot award one spouse an offset for the other's Social Security benefits, the court may not even CONSIDER Social Security benefits. Need advice? Call, leave your info, or scheduleschedule a consultation.
Background: In most marriages one spouse earns substantially more than the other throughout the entire marriage. That means that when they retire, one spouse will have a much larger Social Security retirement benefit. Social Security benefits, however, may not be garnished by any creditor, nor assigned by the recipient to satisfy any debt. In fact, the "anti-alienation" clause in federal law even prohibits assigning benefits between divorcing spouses:
§ 407. Assignment of benefits (a) In general the right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.
Under the supremacy clause of the United States Constitution (U.S. Const. art. VI, cl. 2.) , federal law preempts conflicting state law and the state law is nullified to the extent that it conflicts with federal law. Because federal law prohibits assigning or dividing Social Security benefits, divorce courts cannot divide those benefits. So, when a couple divorces and one spouse has a much larger SS retirement benefit, what can be done? Federal law provides a plan for a divorced spouse to receive Social Security benefits based partly on the Social Security benefit of the primary working spouse. A number of restrictions apply, however: 1) the marriage must have lasted at least ten years, 2) the under-employed spouse must remain unmarried, 3) the under-employed spouse must be at least 62 years old, and 4) the (formerly) employed spouse must have built up some Social Security benefits. Even if the employed spouse keeps working past retirement age, the divorced, under-employed spouse can still qualify for benefits based on the working spouse's benefits. Benefits for a divorced (under-employed) spouse work a lot like maintenance: they terminate upon the recipient's remarriage or upon the (formerly) employed spouse's death. You can learn more at the Social Security website and from this online pamphlet for under-employed, divorcing spouses, and this online pamphlet for (formerly) employed divorcing spouses.
The Basic Rule: IRMO Evans (1980): Rae and Duane Evans divorced in 1978. They had been married 28 years and didn't have any kids. At the time Rae was 50 years old and was a tenured teacher (teachers don't contribute to Social Security so she didn't have any Social Security retirement benefits of her own) while Duane was 49 and had worked at Caterpillar the entire marriage. The trial judge awarded each party their respective pensions. Rae didn't think that was good enough and appealed. In her appeal she argued that not only should she be awarded a portion of Duane's pension, but also (rather inexplicably) half of his Social Security retirement benefits. Her argument is just crazy; but don't take my word for it -- that's what the appellate court said:
At the outset we reject the argument that petitioner should be entitled to one-half of her husband's social security benefits . . . . it is well settled that [Rae], as a divorced wife, having been married to [Duane] for 28 years, will be entitled to receive benefits from her divorced husband's social security account. Her receipt of these benefits is not altered by the divorce and does not reduce [Duane's] social security benefits in any way. The right to receive social security benefits is derived from statute and not from the common law. The federal statute, consistent with its remedial purpose, provides for the various contingencies of life, including the dissolution of marriage. Since the statute itself provides for an equitable distribution of its benefits to dependents, spouses, divorced spouses, and other family members in the event certain contingencies occur, we will not disturb the statutory scheme by suggesting any award of any part of the actual social security retirement benefits to which [the husband] may be entitled upon his reaching retirement age.
In re: Marriage of Evans, 406 N.E. 2d 916, 85 Ill. App. 3d,260, 40 Ill. Dec. 713 (3d Dist., 1980).
So, that's the general rule: Social Security retirement benefits cannot be divided by the court.
No Offset for Soc. Sec. "Disparity": IRMO Hawkins (1987): If the court can't divide the benefits outright, what about giving one spouse more assets to offset the Social Security retirement benefits of the other spouse? That's what the court did in IRMO Hawkins.
Prentiss and Arlene Hawkins divorced in 1984. They agreed that all the assets should be divided equally . . . but they could not agree on the values nor who should get what. So, they explained the situation to the judge, he approved, and he valued and divided everything for them. In the end, the judge gave Arlene an extra $10,000 because of a "disparity" resulting partly from the Social Security benefits Prentiss would receive upon retirement.
Prentiss took issue with this element (among others) and appealed. Arlene argued that this was no big deal because, although federal law says the court cannot divide Social Security benefits, the court didn't do that, here -- all the trial court did was consider the benefits and ordered a separate payment to Arlene to make things fair. The appellate court pointed to IRMO Evans (quoted above) and said:
We find no merit in [Arlene's] argument, as the court's award in any event interfered with the federal statutory scheme providing for the equitable distribution of benefits in violation of that statute and the principle of federal supremacy. The additional $10,000 payment, therefore, cannot be sustained on the grounds that it constituted reimbursement for social security contributions made on [Prentiss's] behalf.
In re: Marriage of Hawkins, 513 N.E.2d 143, 147, 160 Ill.App. 3d 71, 78, 111 Ill. Dec. 897, 901 (5th Dist., 1987).
You Can't Even Give It Away -- IRMO Hulstrom (2003): Okay, so the court can't divide Social Security benefits and the court can't consider those benefits and make an offsetting award of other property . . . but can the parties do something like that, themselves, right? Wrong.
Everett and Ila Hulstrom married in 1948 (when he was 21 and she was 19) and divorced in 1994 (he was 67 and she was 65). They were both receiving Social Security benefits at the time of the divorce and they agreed that from then on, they would combine their benefits and split them equally. After the divorce they had the benefits paid into Ila's bank account and an automatic transfer for the agreed-on one-half was made to Everett's account each month. They each waived maintenance (alimony). They abided by this arrangement for eight years. By 2002, however, Everett's other income had decreased a lot, his medical expenses had increased a lot, and Ila had remarried and was pretty secure, financially.
Everett went back to court to undo the agreement. Everett's argument, essentially, was that the division of the social security benefits was NOT a division of marital property rights, but was really an award of maintenance. Everett's lawyer was thinking ahead: property awards are not modifiable; but maintenance awards are. Even better: he argued that if the splitting of the social security benefits was seen as "maintenance," then Ila's remarriage would end it. Easy peasy. Unfortunately for Everett, the trial judge saw things differently: he noted that over eight years the parties had never treated the social security benefits as maintenance and he also pointed out that the parties specifically waived maintenance in their agreement. The judge said "a deal is a deal" and ruled against Everett's attempt to modify the agreement. Everett appealed.
The appellate court found that Congress had created a statutory exception to the anti-alienation provision in the Social Security Act. In a nutshell, Section 659(a) of the Social Security Act says that Social Security benefits may be reached by a former spouse for alimony or child support . . . but not for property division purposes. Still, Everett got what he wanted. The "may-be-reached-by-a-former-spouse-exception " the court mentioned is only for garnishing benefits to recover unpaid alimony or child support. The exception cannot be used by divorcing couples to split up Social Security benefits. The appellate court agreed with the trial court that the parties had waived maintenance and, really, for eight years had been treating their social security benefits as part of the property division. That was a federal no-no, of course, so the case was sent back to the trial court (nine years after the divorce!!) to re-work the property division. Everett got all of his Social Security benefits, but the price was a do-over for all the other property . . . nine years after the fact.
Pension vs. Soc. Sec. "Disparity": IRMO Crook (2004): Alright, so, we know the court can't divide Social Security benefits, and we know the parties can't divide them, either. We also know that the court cannot award an offset of other property (like, cash) to make up for a disparity in benefits between spouses. Here's a new idea: imagine a case where one spouse has a sizeable Social Security retirement benefit, and the other spouse has a pension of roughly equal size. Why not just allow the former to keep all of the Social Security benefit, and assign to the latter the entire pension? The two things are both sorts of retirement funds so it wouldn't really be like an "offset award," and there would be no division of the Social Security benefit. Best of all, the parties would be even-steven and fairness and equity would prevail. Great idea, right? Let's see.
Bob and Patti Crook married in 1966 and spent 33 years of marital bliss on a farm originally owned by Patti's family and deeded to the couple in 1983. Bob worked the farm, made a decent living, and paid Social Security taxes throughout the marriage. Patti, on the other hand, was a stay-at-home Mom for ten years (three kids) and then worked for Parkland College in Champaign where she paid into the State University Retirement System. Paying into a "SURS" account means you don't pay into Social Security -- meaning Patti had no Social Security retirement benefit. When they divorced in 2000, Patti was 55 years old and, thanks to an early retirement incentive, she was ready to quit working, altogether. The trial court divided the marital assets equally. Got that? Bob got half of Patti's SURS pension . . . and Patti, being too young to apply for a divorced spouse's benefit got NOTHING from Bob's Social Security retirement benefits.
Patti appealed arguing that when the trial court divided the property, it should have considered Bob's future Social Security benefits (that was Arlene's Hawkins's aargument, above). After all, he was set to receive $850 / month (in 2004 dollars) from Social Security and an additional $460 as his one-half share of Patti's pension. Poor Patti would only receive $460 / month . . . period. Ouch! Patti said a fairer outcome would be to allow her to keep her entire pension and allow Bob to keep his Social Security benefits. For the record, if Patti were to apply for the divorced-spouse's benefits from Social Security, that would amount to only about $125 / month (it was that low because she decided to retire at 55). The appellate court agreed with Patti -- fair is fair and giving Bob half of her pension but freezing her out of half of his SS just wasn't fair.
For his part, Bob thought the appellate court's ruling was decidedly unfair and he appealed to the Illinois Supreme Court. Divorce lawyers don't get a lot of cases decided by the Illinois Supremes and we love it when we do because the cases are always a legal analysis tour de force of the particular issue. Crook doesn't disappoint.
The Supremes started by noting that Illinois' divorce law required the trial judge to divide all the marital property in "just proportions," and that pension contributions made during the marriage are characterized as marital property. So, they said, "we must examine the interplay between the Illinois Marriage and Dissolution of Marriage Act and the Social Security Act."
They turned to the (U.S. Supreme Court) case of Hisquerdo v. Hisquerdo, 439 U.S. 572, 99 S.Ct. 802, 59 L.E.2d 1 (1979). Hisquerdo was a divorce case coming out of California that dealt with dividing Railroad Retirement benefits in divorce. Like with SURS, if a worker pays in to RRR benefits he doesn't pay into Social Security. The Hisquerdo court analogized RR retirement benefits with SS retirement benefits holding that the two are fundamentally similar. On the point of whether the trial court should award an offset to compensate one spouse for the interest in the other's expected retirement benefits, the Hisquerdo court said (and the Crook court quoted this):
An offsetting award, however, would upset the statutory balance and impair [the ex husband's] economic security just as surely as would a regular deduction from his benefit check. The harm might well be greater. [The Railroad Retirement Act] provides that payments are not to be 'anticipated.' . . . [A] prohibition against anticipation is commonly understood to mean that 'the interest of a sole beneficiary shall not be paid to him before a certain date. . . . If that definition is applied here, then the offsetting award respondent seeks would improperly anticipate payment by allowing her to receive her interest before the date Congress has set for any interest to accrue.
In re: Marriage of Crook, 211 Ill.2d 437, 286 Ill.Dec. 141, 813 N.E.2d 198 (Ill. 2004).
The Illinois Supremes noted that at least nine states DO allow their trial judges to consider anticipated Social Security benefits when making property awards in divorce cases . . . and they're all doing it wrong!
Instructing a trial court to "consider" Social Security benefits, as the appellate court did in this case, either causes an actual difference in the asset distribution or it does not. If it does not, then the "consideration" is essentially without meaning. If it does, then the monetary value of the Social Security benefits the spouse would have received is taken away from that spouse and given to the other spouse to compensate for the anticipated difference. . . . it is improper for a circuit court to consider Social Security benefits in equalizing a property distribution upon dissolution.
In re: Marriage of Crook, 211 Ill.2d 437, 286 Ill.Dec. 141, 813 N.E.2d 198, 205 (Ill. 2004).
Conclusion: SS Benefits Are Radioactive –You Can't Even Consider Them: So, there you have it. The court cannot divide Social Security benefits (IRMO Evans). The parties cannot divide Social Security benefits (IRMO Hulstrom). The court cannot award an offset to correct for a disparity in Social Security benefits (IRMO Hawkins). And the court cannot even consider Social Security benefits when dividing the other property (IRMO Crooks). If a lawyer tries to even mention Social Security benefits in a divorce case, everyone should object and get the train back on the track because Social Security benefits have no place in that case -- The Illinois Supremes have spoken.
This rule applies not just to property division, but to maintenance awards, too. That's because the anti-alienation clause (see the very top of this article) says "the right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law." That means that when it's considering income streams to establish maintenance payments, the court cannot even consider the future income stream that Social Security benefits would provide because those would be "future payments" and "moneys payable." Indeed, the appellate court in IRMO Hulstrom said "[p]arenthetically, we note that section 407(a) prohibits the transfer of the right of any person to future payment of social security benefits, including 'moneys paid or payable' under the act."
The Fly In The Ointment: So, thanks to IRMO Crook, we have about as clear a rule as one could possibly hope for: "Social Security benefits are radioactive -- don't even consider them when dividing property or setting maintenance."
So, that's the rule: in divorce, Social Security payments are radioactive. Simple, elegant, concise, all-encompassing.
The unfairness of the Crook result, however, seems to have gotten to even the Illinois Supremes. As an aside in Crook, they noted that courts in other states have faced the issue of unfairness in (not) dividing Social Security benefits. The Illinois Supremes said that those other courts "have held that a spouse who participates in a pension system [like SURS] in lieu of Social Security must be placed in a position similar to that of the other spouse whose Social Security benefits will be statutorily exempt from equitable distribution. See Cornbleth v. Cornbleth, 397 Pa.Super. 421, 580 A.2d 369 (1990); Walker v. Walker, 112 Ohio App.3d 90, 677 N.E.2d 1252 (1996); In re: Marriage of Kelly, 198 Ariz. 307, 9 P.3d 1046 (2000). In this case, however, the parties have not argued the applicability of these cases or cited their rationale. Thus, we leave the resolution of that issue for another day."
What the ?!?!?!!? So much for simple and elegant. So, if you've pumped money into a pension in lieu of Social Security while your spouse has contributed to Social Security, and your pension seems smaller than your spouse's Social Security retirement benefit, you MAY be able to argue for an offset -- the Illinois Supreme Court certainly left the door open.
Crook Revisited: IRMO Mueller (2015): Chris Mueller is a Springfield cop who paid into the police pension in lieu of paying into Social Securty. He and his wife, Shelley, divorced in 2013. Shelley was awarded a portion of Chris's pension and, of course, she got to keep all of her Social Security benefits. When he gets older, Chris may apply only for the spouse's share available under Social Security. Chris thought that wasn't fair.
At trial, Chris showed that over his lifetime his pension could be expected to pay out $991,830. Chris argued that if he hadn't been forced to pay into the policeman's pension, and instead had paid into Social Security, his Social Security benefits would be worth $352,000. Chris thought that what would be fair would be to subtract that amount -- he called it a $352,000 "Windfall Elimination Provision" (or, WEP) offset -- from the value of his pension ($991,830) and let his former wife have a share of the remainder. By factoring in an offset, Chris argued, fairness would be achieved because 1) Shelly would have the Social Security she contributed to, 2) Chris would have a chunk of his pension set aside away from Shelley representing the Social Security he would have contributed to, and 3) the remainder of the pension would be divided between them.
Sounds fair, right? Sounds familiar, too . . . Let's go back to that fly in the ointment in IRMO Crook : the Illinois Supreme Court said that maybe the rule should be that ". . . a spouse who participates in a pension system [like SURS] in lieu of Social Security must be placed in a position similar to that of the other spouse whose Social Security benefits will be statutorily exempt from equitable distribution." The Crooks, however, hadn't asked the Illinois Supreme Court to rule on that issue and so the Supremes "left the resolution of that issue for another day." Chris was saying "today is that day."
The trial court didn't buy Chris's argument. Chris appealed (this is a Rule 23 opinion for lawyers reading this), lost, and appealed to the Illinois Supreme Court. He lost there, too, in a four-to-two decision opposed by an eloquent dissent written by Justice Burke. Mueller v. Mueller, 2015 IL 117876 (Ill., 2015). The Illinois Supreme Court, in considering Chris's proposal to set aside a portion of his pension to balance Shelley's indivisible Social Security benefits (what he called the "WEP" offset) said:
The valuation method proposed by [Chris's expert"] is not strictly speaking an offset, but it does consider the existence of Shelley's anticipated Social Security benefits to create parallel benefits for Christopher that would affect the division of marital property. That method violates the core holding of Crook.
Mueller v. Mueller, 2015 IL 117876 (Ill., 2015)
In her dissent Justice Burke, I think, got it right. She said:
¶ 34 Christopher makes a straightforward request in this dissolution of marriage case. Shelley, his former wife, is a participant in Social Security. Federal law mandates that the Social Security benefits to which Shelley is entitled may not be divided during the dissolution proceeding but must remain solely with her. Christopher, however, is not a participant in Social Security. His principal retirement benefit, a municipal pension, is considered marital property and is subject to division.
¶ 35 Given these facts, Christopher asks that the trial court be permitted to divide his pension in a way that would place him in the same financial position as Shelley. Specifically, Christopher proposes that a portion of his pension be retained for his benefit alone, with the remainder then apportioned between the parties. To establish how much of his pension he should retain, Christopher suggests that the trial court use the amount of Social Security benefits for which he would be eligible, if he had participated in that program. Stated otherwise, Christopher's request is simply that he be treated similarly to Shelley—no better and no worse—during the dissolution proceeding.
¶ 36 Christopher's proposed method for determining how to apportion his pension is consistent with section 503(d) of the Dissolution Act (750 ILCS 5/503(d) (West 2012)). That provision requires that marital property be divided "in just proportions considering all relevant factors" (id.), and it is difficult to conclude that an apportionment of property which places the divorcing spouses on an equal footing during the dissolution proceeding could be anything other than "just." The appellate court below made the same observation, noting that allowing Christopher's proposed division of his pension would achieve "a more equitable result." 2014 IL App (4th) 130918-U, ¶ 24. See also, e.g., In re Marriage of Dunlap, 294 Ill. App. 3d 768, 778 (1998) (the touchstone of a just apportionment of property "is whether [the distribution] is equitable").
Mueller v. Mueller, 2015 IL 117876 (Ill., 2015).
Railroad Retirement Benefits: The grand-daddy of the social-security-benefits-are-radioactive" cases is the 1979 Hisquerdo decision (above) which was really a case about dividing Railroad Retirement Benefits. Since 1979, we've known that Tier I benefits are not divisible between divorcing spouses. Tier I benefits are in the form of an annuity calculated just like Social Security benefits and include wages earned in the railroad industry and other employment sectors spelled out in the Social Security law. In Hisquerdo, the U.S. Supreme Court said that section 14 of the Railroad Retirement Act (45 U.S.C. 231(m)) prohibited a divorce court from dividing Tier I benefits between divorcing spouses. In 1983 -- four years after Hisquerdo -- Congress added section 45 USC 231(m)(b)(2) addressing Tier II benefits. Tier II benefits may be divided between divorcing spouses according to the Railraod Retimement Board (see 20 C.F.R. Part 295). The division is accomplished by a "partition" (like a Q.D.R.O.) that meets the stated requirements:
the judgment for divorce, legal separation, or annulment must be final (interim awards are not possible);
the judgment must specifically address the RR benefits and distinguish them from other pension benefits;
the division must sound in the nature of property division as opposed to maintenance or spoual support;
the language must place the onus on the RRB, not the employee,to make the division;
the judgment may not touch the Tier I benefits -- only non-Tier I benefits are may be divided;
the Railroad Retirement Board's Office of General Counsel must receive a qualifying (containing all the requirements with correct phrasing) partition order.
Once the partition document has been properly prepared and entered in the court record, a certified copy must be sent to the Office of the General Counsel of the Railroad Retirement Board. If you're in doubt about what to do or how to do it, check out The Attorney's Guide to the Partition of Railroad Retirement Annuities; it's chock full of everything you need to know. Other benefits also may be divisible, including the supplemental annuity, vested dual benefit and overall minimum increase.
The RR Benefits Trainwreck -- IRMO Frank: Then, along came In re: Marriage of Frank, 2015 IL App (3d) 140292. Bruce and Shirley Frank married in April, 1978. Bruce worked for the railroad for 18 years. Twenty years later, in April, 1998, Bruce and Shirley signed a Marital Settlement Agreement, Bruce filed for divorce, and the very next day the judgment for divorce was entered incorporating the MSA. The MSA said:
"Artivle VIII: BRUCE shall have the sole right, title and interest in his pension and individual retirement plans, including but not limited to past, present and future contributions, interest and principal, whether contributed by BRUCE or his employer or both and whether unvested, partially vested, or fully vested, free and clear of any and all claims of SHIRLEY. A Qualified Domestic Relations Order will be entered which will provide SHIRLEY with $621.00 per month upon BRUCE's retirement."
The judgment, however, said:
"Article VIII of the parties' Separation Agreement is incorporated to the extent that it provides that BRUCE is awarded all rights in and to his pension provided by the United States Railroad Retirement Board and to the extent that SHIRLEY will receive a separate payment of $621.00 per month, however, upon clarification by the plan administrator of the provisions of the pension, it appears that SHIRLEY's benefits will commence not upon BRUCE's retirement but upon her reaching the eligibility age for retirement, upon which date she will receive her spousal pension benefits in the amount of $621.00 per month without the necessity for any qualified domestic relations order."
Hmmmmmm . . . something smells fishy:
the judgment was entered hastily,
there's a huge discrepancy between the language of the MSA and the judgment,
Shirley hadn't been represented by an attorney,
she hadn't even seen the judgment with its equivocating language,
she didn't attend court for the prove-up (probably because Bruce or his attorney told her that her attendance wasnt' necessary), and . . . wait for it . . .
she didn't have any retirement accounts of her own.
Shirley didn't know it at the time, but she screwed herself.
Thirteen years after their divorce, in June, 2012, Bruce retired. Shirley thought she'd start to receive some annuity payments from the Railroad Retirement Board. After two years of no payments, Shirley went back to the divorce court to enforce the terms of the MSA. The trial court denied her petition, and she appealed. On appeal, amazingly, the Third District Appellate Court said:
The other portions of Bruce's railroad pension, Tiers I and II, cannot be divided or used to offset the marital property distribution.
In re: Marriage of Frank, 2015 IL App (3d) 140292
What the ?!?!?! The appellate court simply got this one wrong. Tier II benefits are plainly divisible under 45 USC 231(m)(b)(2). I suspect thte Frank court confused the Divorced Spouse Annuity with the Tier I and Tier II beneifts. At any rate, Frank stands for the proposition that Tier II benefits are not divisible between divorcing spouses; so beware and, if you're in a position like Shirley's . . . hire a lawyer.