Social Security Offset Definition: A Social Security Offset is a reduction in the value of pension benefits subject to equitable distribution due to an adjustment based upon hypothetical or actual Social Security benefits.

General Discussion: Numerous courts are struggling with the question of how Social Security benefits should be treated in equitable distribution. By Federal statute, Social Security benefits are not subject to equitable distribution in divorce proceedings. However, employees who participate in many of our governmental plans do not contribute towards Social Security, and instead make contributions towards their government pension plans. For these employees, a portion of their pensions constitutes replacement for Social Security. Therefore, in theory, the retirement benefits payable under these governmental plans could be described as being made up of two parts; (i) actual pension, and (ii) "hypothetical" social security.

Considering the federal statute which exempts social security benefits from equitable distribution in divorce, an argument can be made as to whether or not a portion of these types of government pensions should be sheltered from equitable distribution to the extent that such portion represents a replacement for social security. Conversely, there is some controversy as to whether of not actual social security benefits should be considered and/or divided in equitable distribution.

There are essentially two viewpoints on the issue.

1.) One argument advocates the consideration or reduction of either spouses’ pension benefits based upon hypothetical or actual Social Security in determining the equitable distribution of the parties’ property. This argument appears to work best in equitable distribution states. Unlike community property states, equitable distribution states do not require an equal split of all property acquired during the marriage, but instead give the court discretion to consider all of the parties’ property in order to arrive at a just and reasonable division.

2.) Alternatively, the opposition argues that consideration or a reduction based upon hypothetical or actual Social Security is not appropriate. Several courts have concluded that a pension which is a substitute for Social Security may nonetheless be treated as marital property subject to division.

Classification: According to Federal statute, Social Security benefits are not divisible in divorce proceedings, and therefore cannot be considered a marital asset. However, Federal Law does not prohibit the division of pension benefits that are received in lieu of Social Security; thus allowing these plan to be divided.

Valuation: If it has been determined that one or both spouses’ hypothetical or actual Social Security benefits will be considered in determining the equitable distribution of the parties’ property, then the method of valuation of the benefit(s) will depend upon the parties intent to do an immediate offset or deferred distribution of their other property.

Social Security is the Federal Government’s version of a defined benefit plan. A defined benefit pension plan is a plan that promises to pay a specified benefit at retirement. When a spouse’s rights under a defined benefit plan are valued for equitable distribution in divorce, it is necessary to reduce the benefits to present value. This present value is used in determining an appropriate credit under an immediate offset division of assets.

Distribution: Actual Social Security benefits are not divisible in divorce proceedings, and therefore, cannot be distributed as a marital asset. However, a pension which is a substitute for social security may, nonetheless, be treated as marital property and distributed upon divorce. The present value of such benefit may be determined for use in calculating an appropriate credit under an immediate offset. In addition, such benefits could be distributed under the deferred distribution method.

State Case Law

The following is a summary of case laws we have come across in our research of this topic. If nothing is listed under a particular state it is because we have not found any pertinent cases relative to this topic. If you know of a case that relates to this topic, and do not find it listed here, please e-mail us the citation so that we can include it in this section.
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ALABAMA

ALASKA

Mann v. Mann, 778 P.2d 590 (Alaska 1989)
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

ARIZONA

Kelly v. Kelly, 9 P.3d 1046; 2000 Ariz.

Husband’s pension benefits that were in lieu of social security benefits were exempt from distribution as community property following divorce, just as wife’s social security benefits were separate property.

ARKANSAS

SKELTON, 5 S.W.3d 2; 1999 Ark.
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

CALIFORNIA

COLORADO

In re James, 950 P.2d 624 (1997)
A public employee’s lack of Social Security may not be considered in determining the value of his or her pension benefits.

CONNECTICUT

DELAWARE

DISTRICT OF COLUMBIA

FLORIDA

Johnson v. Johnson, 726 So. 2d 393 (Fla. 1st DCA 1999)
Social security replacement plans are marital assets subject to equitable distribution.

Bain v. Bain, 553 So. 2d 1389 (Fla. DCA 1990)
Offset. - A portion of a pension should be exempted from the marital estate to the extent that part of the pension might figuratively be considered "in lieu of" social security benefits, since social security benefits are exempt by federal statute from being part of the marital estate. Inequitable results may arise when court awards portion of pension plan in lieu of social security if non-employee spouse also receives social security payments.

GEORGIA

HAWAII

IDAHO

ILLINOIS

INDIANA

IOWA

KANSAS

In re Marriage of Sedbrook, 16 Kan. App. 2d 668, 827 P.2d 1222 (1992)
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

KENTUCKY

LOUISIANA

MAINE

MARYLAND

MASSACHUSETTS

MICHIGAN

MINNESOTA

MISSISSIPPI

MISSOURI

Knapp v. Knapp, 874 S.W.2d 520 (Mo. Ct. App. 1994)
Court did not abuse its discretion when it awarded wife her entire teacher’s pension (separate property under Missouri law) because her husband acquired Social Security benefits through his work.

MONTANA

NEBRASKA

NEVADA

Wolff v. Wolff, Nev. -, 929 P.2d 916 (1996)
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

NEW HAMPSHIRE

NEW JERSEY

White v. White, 284 N.J. Super. 300, 664 A.2d 1297 (Ch. Div. 1995)
Offset against spouses Social Security.

Hayden v. Hayden, 284 N.J. Super. 418, 665 A.2d 772 (App. Div. 1995)
No offset. - Valuation of pension is not reduced by amount of social security benefits husband would have received in equivalent private employment, because husband may actually receive Social Security benefits based on other employment during or after state police career.

NEW MEXICO

NEW YORK

NORTH CAROLINA

NORTH DAKOTA

Olson v. Olson, 445 N.W.2d 1 (N.D. 1990)
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

OHIO

Helgeson v. Helgeson, CASE NUMBER 8-2000-14, COURT OF APPEALS OF OHIO, THIRD APPELLATE DISTRICT, LOGAN COUNTY, 2000 Ohio App. LEXIS 5290, November 15, 2000

The trial court did not err when it offset wife’s monthly pension benefit with a hypothetical social security benefit in order to achieve an equitable division of husband’s pension in a divorce cause of action.

Walker v. Walker, 112 Ohio App. 3d 90, 677 N.E.2d 1252 (1996)
Offset. - A portion of a pension should be exempted from the marital estate to the extent that part of the pension might figuratively be considered "in lieu of" social security benefits, since social security benefits are exempt by federal statute from being part of the marital estate.

Eickelberger v. Eickelberger, 93 Ohio App. 3d 221, 638 N.E.2d 130 (1994)
Offset. - A portion of a pension should be exempted from the marital estate to the extent that part of the pension might figuratively be considered "in lieu of" social security benefits, since social security benefits are exempt by federal statute from being part of the marital estate.

"As a matter of public policy, a trial court should consider one spouse’s Social Security benefits before the court divides the other spouse’s entire public pension and retirement plan."

Smith v. Smith, 91 Ohio App. 3d 248, 632 N.E.2d 555 (1933)
It is improper directly to offset the present value of one party’s pension benefit by the present-day value of the opposing party’s Social Security benefits." However, the court recognized that Social Security benefits "while not marital assets and not subject to division, are to be considered when allocating retirement benefits. Furthermore, Social Security benefits are ’retirement benefits’ pursuant to WC. 3105.171. The only relevancy Social Security benefits have in the division of marital property is in the equitable division of retirement benefits. Social Security is not relevant in the division of other marital assets." In other words, Smith nets out the actual Social Security of the covered participant against the government pension.

Coats v. Coats, 63 Ohio Misc. 2d 299, 626 N.E.2d 707 (C.P. 1993)
No offset but consider spouses Social Security. The portion of a civil service pension to be considered as marital property is the present value of the public pension that exceeds the present value of the social security benefits actually earned by the other spouse. However, the circumstances of the parties should be considered in applying this formula.

Neel, 113 Ohio App. 3d 24 (1996)
A civil service employee may exclude from equitable distribution that portion of pension to be received in lieu of Social Security. The amount of the offset shall be the hypothetical Social Security benefit had the employee been employed in a non-exempt job, with the benefit to be calculated using salary history and Social Security tables.

Leadingham, v. Leadingham, 120 Ohio App. 3d 496, 698 N.E.2d 465 (1997)
Consider other spouses Social Security.

OKLAHOMA

OREGON

PENNSYLVANIA

Cornbleth v. Cornbleth, 397 Pa. Super. 421, 580 A.2d 369 (1990)
A civil service employee may exclude from equitable distribution that portion of pension to be received in lieu of Social Security. The amount of the offset shall be the hypothetical Social Security benefit had the employee been employed in a non-exempt job, with the benefit to be calculated using salary history and Social Security tables.

McClain v. McClain, Pa. Super. 693 A.2d 1355 (1997)
A hypothetical Social Security offset is not appropriate when one party has a government pension in lieu of Social Security and the other party does not, in fact, have any Social Security. The case therefore addressed the potential problem of unfairness inherent in hypothetical offsets unrelated to the actual Social Security benefits being offset.

Elhay v. Elhay #, 413 Pa. Super. 578, 605 A.2d 1268 (1992)
No Offset - If a portion of both spouses pension would be in lieu of social security.

Twilla v. Twilla, Pa. Super. 664 A.2d 1020 (1995)
When one party is covered by the Civil Service Retirement System (CSRS) and is not receiving Social Security benefits and the other party is a Social Security recipient (which is not considered an asset for equitable distribution purposes) then in making an equitable distribution award, the court should compute what the present value of the Social Security benefits would have been to the CSRS participant during the coverture period and subtract that amount from the value of the CSRS pension in order to determine its marital portion.

RHODE ISLAND

Schaffner v. Schaffner, 713 A.2d 1245 (R.I. 1998)
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

SOUTH CAROLINA

SOUTH DAKOTA

TENNESSEE

TEXAS

UTAH

Jefferies v. Jefferies, 895 P.2d 835 (Utah Ct. App. 1995)
Retirement plans that replace social security benefits are included in marital property distribution.

VERMONT

VIRGINIA

WASHINGTON

WEST VIRGINIA

Loudermilk v. Loudermilk, 183 W. Va. 616, 397 S.E.2d 905 (1990)
No Offset - If a portion of a pension constitutes replacement for Social Security, it should be valued and distributed without deducting the hypothetical amount of Social Security benefit that would be receive if the pensionholder had participated in the Social Security System.

WISCONSIN

Mack v. Mack, 323 N.W.2d 153 (Wis. Ct. App. 1982).
Retirement plans that replace social security benefits are included in marital property distribution.

WYOMING

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