Are Disability Pensions Subject to Equitable Distribution?

The Court of Appeals has held in the case of Dolan v. Dolan, that if a portion of a spouses ordinary disability pension represents deferred compensation related to length of employment occurring during the parties' marriage, it constitutes marital property subject to equitable distribution. However, any compensation a spouse receives for personal injuries is not considered marital property and is not subject to equitable distribution. The Court of Appeals, in Dolan, distinguished a pension with a “length of service” requirement from one without. Specifically, the Court found that a pension is not a pure disability pension if the spouse could still receive the pension “even if the disability was not the result of a job-related accident, provided the employee satisfies the length of service requirement.” The Court then distinguished that pension from one where an employee “does not have to satisfy a length of service requirement but rather, the only requirement for entitlement to the pension is that the employee be physically or mentally incapacitated for the performance of service,” asserting that the latter constitutes compensation for injuries and not deferred compensation.

Alternatively, to the extent that a Court were to determine that a Disability Pension is subject to equitable distribution, then the portion of a disability pension which represents compensation for personal injuries is still separate property. Accordingly , in order to determine the allocation between retirement benefits and disability benefits, a court must compare the pension benefit a spouse would have received had the spouse retired normally with the allowance they would receive under the ordinary disability retirement provision.

A spouses entitlement to pension benefits must be specifically set forth in any settlement agreement and/or Judgment of Divorce. Pension benefits are distributed pursuant to a Domestic Relations Order (DRO). A DRO can convey only those rights which the parties agreed to in a settlement agreement or as contained in a judgment, after a hearing. A court may not include in a DRO rights not provided for in the underlying stipulation or written agreement.