Daugherty v. Daugherty, Butler County Court of Common Pleas No. DR18 06 0563 (August 30, 2019).

Issue:  When a defined contribution plan contains both separate and marital property, are loans/withdrawals during the marriage considered separate or marital in nature?

Decision:  In this case, the Butler County Court of Common Pleas, Domestic Relations Division, found that the loans/withdrawals taken out of the defined contribution (DC) plan were marital in nature.  The Husband and Wife were married 1999.  At the time of marriage, the Husband had funds in his Federal Thrift Savings Plan (TSP) that were his separate property.  During the marriage, Husband continued to contribute to the account but also took multiple loans and withdrawals—some of which were not repaid by the date of divorce in 2019.  During the trial, Husband offered unrebutted testimony that all of the loans/withdrawals were spent on marital debt.

One of the issues at trial was whether the loans/withdrawals should be considered marital in nature—thereby excluded from the calculation of the marital portion.  Or if the loans/withdrawals, or any portion thereof, should be considered separate property and imputed against Husband’s portion of the benefits.  Wife hired an expert who testified that all the loans/withdrawals taken against the TSP during the marriage should be allocated using a proportional method.  The expert claimed that the assets in the TSP account were 40 percent marital and 60 percent separate property.  He then proposed that all the loans/withdrawals, regardless of how the money was spent, should be considered 40 percent marital and 60 percent separate in nature.

The Wife’s attorney hired QDRO Group for expert testimony.  Dave Kelley and Jim Coco testified that, since the loans/withdrawals were taken during the marriage and Husband testified that they were used to pay marital debts, 100% of the loans/withdrawals should be considered marital in nature.  Dave and Jim explained that it is our company’s position, which is held by many others in the field, that loans/withdrawals taken from a retirement account during the course of the marriage should be assumed to have been spent on marital debts/assets and are therefore marital in nature.  This assumption can only be overcome by demonstrating that the funds from the loans/withdrawals were spent on something that is separate in nature.

After considering the expert testimony and Husband’s unrebutted testimony, the trial court found the loans/withdrawals from the TSP account were marital in nature.  As such, the loans/withdrawals should be excluded from the calculation of the marital portion of the TSP account.

Observation:  In a divorce, it is important to discover if any loans/withdrawals were taken from a retirement plan, when the loans/withdrawals were taken, and what the funds were spent on.  This discovery can make a difference whether the loans/withdrawals are considered marital or separate in nature, which will affect the amount your client ultimately receives.

How we can help:  We produce reports that trace the growth on the separate property component of defined contribution plans and can also help you choose how to treat plan loans/withdrawals in a way that will stand up in court.  Call us anytime to discuss the specifics of your case.