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What is the “Brown Rule” in California divorces?

On Behalf of | Apr 18, 2019 | Firm News, Property Division

One of the most difficult questions to answer in any California divorce is the treatment of accumulated benefits in retirement plans belonging to one spouse or the other. If the benefits are fully vested, that is, the spouse who earned the benefits owns 100% of all benefits to which he or she may be entitled, the couple can include the fully-vested amount in their calculations of the property division. But what happens to benefits that are not fully vested?

A California Supreme Court decision in the case In re: Marriage of Brown, from 1976 has cast a long shadow over division of pension plans ever since the decision was handed down. The court began its analysis by observing that courts must divide accrued but not vested retirement benefits equally between the divorcing spouses.

While the formula has often been called the “Brown Rule,” a later case decided in 2007 ruled that the rule in Brown did not apply to both defined-benefit and defined-contribution plans. The Brown Rule can be used only with respect to defined benefit plans, where the amount of benefits is substantially related to the number of years of service. For defined contribution plans, where the employee’s benefits are defined by the plan, the Brown Rule cannot be used; instead, the court can divide the plan benefits by either cashing out the non-employee spouse by reducing the benefits to present value or retain jurisdiction over this aspect of the case.

Regardless of the rule chosen by the court to divide unvested benefits, the decision can be complex and can impose a division that is not fair to one spouse or the other. In addition, couples who must divide up more than one retirement plan, the services of a knowledgeable attorney or accountant can ensure that the allocation of unvested benefits is done properly.