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October 2, 2005
Case Law Developments: Exemption for Teachers Pensions
In a case of first impression, the Kentucky Court of Appels was called upon to reconcile two different statutes relating to division of teacher's pension plans in divorce. The court concluded that a statutory provision allowing division of exempt pension benefits to the extent they exceed the other spouse's pension did not apply in the division of a teacher's pension, even though the teacher pension exceeded the other spouse's retirement fund by nearly $80,000.
Shown v. Shown, 2005 Ky. App. LEXIS 216 (September 30, 2005)
Opinion on the web at http://22.214.171.124/COA/2004-CA-000988.pdf (last visited October 2, 2005 bgf)
It will be interesting to see if the court's statutory construction is upheld should there be a further appeal of the case...
Kentucky legislation, like that in many states, exempts teacher pensions from division as marital property upon divorce. That statute also provides that if one spouse has a retirement benefit exempted under this statute, the other spouse's retirement benefits, regardless of their source, shall also be exempt.
In 1996, the legislature amended a different statutory section relating to pension division. That amendment provided that, where one spouse's pension benefits are exempt from division, "the level of exception provided to the spouse with the greater retirement benefit shall not exceed the level of exception provided to the other spouse."
In its brief explanation of how it reconciles these two statutes, the Kentucky court deems the statute providing that teacher's pensions may not be divided to be more specific that the pension division statute limiting the amount of exempt pension benefits. Thus, the court held that no portion of the Husband's teacher benefit pension was divisible, despite the fact that it exceeded Wife's IRA by by nearly $80,000. To make matters worse for Wife, the court held that Wife's IRA did not constitute a "retirement benefit" that she could claim as exempt because of the exemption of Husband's pension.
The court suggests that the Kentucky legislature is the place for any inequities that might be perceived in this case to be corrected. Unfortunately, as the court pointed out in its opinion, the very statutory amendment the court interpreted here was enacted in reaction to a very similar court case in 1995 in which one spouse's exempt pension greatly exceeded the other spouse's pension. Under the court's analysis, in order to have any portion of teacher retirement beneifts made divisible, the legislature will need to amend the section of the statute that directly applies to these benefits.