Are Disability Payments Marital Property?

Around the nation, trial and appellate courts have had to decide whether or not disability pensions should be considered as marital property. Under what is called the “analytic” approach, the disability pension is divided into the “regular pension” component and the pure disability component (which is in lieu of future earnings), and only the regular pension is considered marital property. Under what is called the “mechanistic” approach, the entire disability pension is marital property, if the right to receive the disability pension occurred during the marriage. The majority of decisions across the nation favor the analytic approach.

In Larrison v. Larrison, 392 N.J. Super. 1 (App. Div. 2007), this very issue came before the court in a matter involving a New Jersey Police and Firemen’s Retirement System (PFRS) disability pension. The trial court in Larrison selected not to separate the regular-pension component from the pure-disability component. The Appellate Division reversed the trial court, in support of the analytic method articulated in Avallone v. Avallone, 275 N.J. Super. 575, (App. Div. 1994).According to Avallone , when addressing an equitabledistribution claim against a disability pension, the reviewing court must determine “which portion of the pension represents a retirement component in which plaintiff would be entitled to share, and that portion which represents compensation for defendant’s personal disability and personal economic loss.” In Larrison , the appraiser for the plaintiff (nonemployee spouse) applied the coverture fraction (78.18 percent) to the entire disability pension of $2,733 per month and calculated a marital present value of $536,407. The appraiser admitted that at the time of the disability retirement, the employee spouse was not entitled to an early retirement, and if he retired at that point, without disability, he “would only have received a ‘refund of his contributions,’ which totaled $35,430.” The appraiser for the defendant (employee spouse) calculated the deferred accrued benefit, payable at normal retirement (age 55), to be $1,127 per month, as of the date of disability. In other words, if the employee spouse had terminated on the date of disability and then collected a deferred pension at age 55, the benefit would have been $1,127 per month. The appraiser then calculated the present value of this benefit, after coverture, to be $60,371.