The Retirement System does not decide if a particular benefit constitutes marital or separate property in a matrimonial action. In a case involving the award of an accidental disability retirement benefit, the Court of Appeals has held that, to the extent the accidental disability award is compensation for personal injuries, it is separate property (Dolan v. Dolan, 78 NY2d 468 (1991)). Courts have further held that the party receiving the pension benefit and seeking to avoid equitable distribution bears the burden of proving that the pension is separate property. The entire benefit is presumed to be marital property subject to equitable distribution (Allwell v. Allwell, 277 AD2d 789 (3d Dept. 2000); Palazzolo v. Palazzolo, 242 AD2d 688 (2d Dept. 1997); Mylett v. Mylett, 163 AD2d 463 (3d Dept. 1990)).
Many disability benefits administered by the Retirement System are calculated without regard to the service a Participant has upon retirement, but instead are a fixed percentage of the Participant’s final average salary, regardless of actual service at retirement. The Third Department has held that a disability pension may still be subject to equitable distribution even if the pension is calculated as a flat percentage of the final average salary and is not based on service (Peek v. Peek, 301 AD2d 201 (3d Dept. 2002)).
If the intent is to limit the ex-spouse’s distribution to what a service retirement would have provided, then the Document Relation Order (DRO) should require the Retirement System to calculate a hypothetical service retirement benefit based on salary and service accrued to the date of the disability award (without penalty for early retirement). Under certain circumstances, a hypothetical service retirement benefit may pay a greater monthly benefit than a disability benefit. The Retirement System can calculate an ex-spouse’s share based on the lesser of the two benefits. If the DRO is silent on this issue, the Retirement System will take the ex-spouse’s distribution from the Participant’s disability retirement benefit. It’s important to note that a disability retirement benefit does not revert to a service retirement benefit when the Participant reaches the service retirement eligibility age.
If the Retirement System is ordered to calculate a retirement benefit based on the lesser of the hypothetical service retirement benefit or the disability benefit, the following paragraphs should appear in the DRO and the appropriate System should be identified (i.e., New York State and Local Employees’s Retirement System or New York State and Local Police and Fire Retirement System):
ORDERED, that should the PARTICIPANT retire on a disability retirement benefit from New York State and Local Retirement System, the Retirement System in accordance with the formula devised in the case of Majauskas v. Majauskas, 61 NY2d 481(1987), is hereby directed to calculate a hypothetical service retirement benefit, based on the PARTICIPANT’S earnings and years of credited service. His or her retirement benefit shall be calculated in the same manner as a normal service pension would be calculated without any reduction for ordinary termination of employment. From this hypothetical service retirement benefit, the Retirement System is hereby directed to pay to the ALTERNATE PAYEE that portion of the PARTICIPANT’s monthly retirement benefit which is equal to ___ percent of a fraction; and it is further
ORDERED, that should the PARTICIPANT’S hypothetical service retirement benefit exceed the PARTICIPANT’S disability benefit, then the Retirement System is directed to pay the ALTERNATE PAYEE that portion of the PARTICIPANT’S monthly disability retirement benefit which is equal to ____ percent of a fraction; and it is further
ORDERED, that the numerator of the fraction shall be _______ months [must provide the specific number or months] and the denominator shall be the total number of months of service credit which the PARTICIPANT had at the time of retirement. The term “retirement benefit” as used herein, shall be deemed to include any annuity as well as any supplemental retirement benefit which is paid by the Retirement System to PARTICIPANT’s and it is further