Diffenderfer revisited - is the double-dipping quagmire still alive?

• Author: Schwartz, Robert M.

In December 2005, the entire New York City transportation system was shut down as a result of a strike by transit workers. One of the key issues of that strike was an attempt by workers to protect their entitlement to retirement benefits. The New York transit workers' strike, as well as other recent labor disputes, exemplify the high emotions associated with these benefits. Family law attorneys know all too well the attachment that participants have to their retirement plans. This emotional attachment, as well as a lack of understanding of the nature of retirement plans, has led to confusion as to how retirement benefits are to be treated with respect to equitable distribution and alimony. The confusion is demonstrated by Diffenderfer v. Diffenderfer, 491 So. 2d 265 (Fla. 1986), and what I have called the "Diffenderfer double-dipping quagmire."

Types of Retirement Plans

An analysis of the Diffenderfer quagmire must begin with a general knowledge of the three main types of retirement plans.

* Defined Contribution Plans. A defined contribution plan does not provide any guaranteed benefits to the participants. Instead of a guaranteed benefit, the plan establishes individual accounts for the participants based solely on what has been contributed along with any interest and investment earnings or losses attributable thereon, as well as forfeitures from the accounts of other participants which have been allocated to the account. (1) Examples of defined contribution plans are profit sharing plans, money purchase pension plans, [section]401(k) plans, and employee stock ownership plans. Defined contribution plans are analogous to savings accounts because participants' rights to benefits are limited to the balance in their accounts. As the employees of Enron sadly discovered, if the account is worthless, then the participant will receive nothing.

* Defined Benefit Plans. A defined benefit plan "promises" the participant a specific benefit at the time of retirement. The amount of the benefit is usually determined by the use of a formula that includes years of service, date of retirement, and salary. There are no separate accounts maintained for participants. In order to ensure that there are sufficient assets to pay retirement benefits, defined benefit plans are actuarially funded on an aggregated basis utilizing various assumptions. In other words, contributions are not made on behalf of individual participants. (2)

* Individual Retirement Accounts. Individual retirement accounts (IRAs) are trusts created and organized in the United States for the exclusive benefit of an individual or his/her beneficiaries and are governed by [section]408 of the Internal Revenue Code. IRAs are similar to defined contribution plan accounts.

The History of the Quagmire

Once upon a time, when there was no equitable distribution statute, a question existed whether retirement benefits should be considered a marital asset, or whether they should be treated as a source of income for purposes of determining support. In 1986 (approximately two years before the passage of the equitable distribution statute), the Florida Supreme Court in Diffenderfer held "that a spouse's entitlement to pension or retirement benefits must be considered a marital asset for purposes of equitably distributing marital property." (3) The Diffenderfer court also held that retirement benefits could be considered as a source of income for the payment of support. The court, in dicta, explained"[o]bviously, however, injustice would result if the trial court were to consider the same asset in calculating both property distribution and support obligations. If the wife, for example, has received through equitable distribution or lump sum alimony, one-half of the husband's retirement pension, her interest in his pension should not be considered as an asset reflecting his ability to pay." (4) This statement appears clear on its face and is consistent with the concept that courts should equitably divide the marital estate and then determine the need and ability to pay support.

A problem arose, however, as Diffenderfer was disseminated throughout Florida. That problem was in the form of the Westlaw/CD-Rom versions of the reported case. There was a discrepancy between the official reported version of the case and the Westlaw/CD-Rom version. In the Westlaw version, instead of the language reflected above that the court should not consider the wife's interest in the husband's pension when considering the husband's ability to pay, it stated the following: "If the wife, for example, has received through equitable distribution or lump sum alimony, one-half of the husband's retirement pension, his interest in his...