Facts: Husband and Wife divorced after 22 years of marriage. Both had worked as teachers and acquired retirement investments through the Tennessee Consolidated Retirement System (“TCRS”).

The retirement benefits Wife accumulated during the marriage significantly exceeded those earned by Husband because of her longer service, vesting, and higher pay.

The present value of Wife’s account was $365,314, while the present value of Husband’s account was $115,013. Neither account vested during the divorce because both parties continued to work.

Because Wife’s TCRS account was significantly larger than Husband’s account, and she lacked the liquid assets to fund a distribution of Husband’s marital interest in her TCRS account, they agreed that Husband would receive a coverture percentage of 27% of Wife’s TCRS benefits via a deferred distribution method.

When the parties could not agree on the language to effectuate the division of their retirement accounts, they authorized the trial court to determine the language needed to implement their agreement.

When announcing their agreement, Husband’s counsel explained that Wife “will be paying a coverture percentage of 27% of the marital portion of the retirement to [Husband] upon her retirement.”

The trial court asked both parties if they had heard what was announced in court and whether they agreed to it. Both parties affirmed their agreement.

The trial court drafted a final order that included these instructions for dividing Wife’s TCRS retirement account:

Husband shall receive a share calculated by using a coverture percentage of 27%, and that the following formula shall be used to calculate Husband’s share of Wife’s retirement: 22 years of marriage divided by Wife’s total years of TCRS service, said fraction being multiplied by 27%. The resulting percentage shall be applied to any payment from Wife’s TCRS retirement of any nature, including lump sum, monthly payments, beneficiary distributions or otherwise, and shall be paid directly to Husband by TCRS.

Wife moved to amend the final order, claiming that it erroneously allowed Husband to receive more than his marital portion of her retirement benefits.

The trial court denied Wife’s motion.

Wife appealed.

On Appeal: The Court of Appeals affirmed the trial court.

Wife argued that she agreed to a specific percentage of what accrued in her account during the marriage. Still, the trial court’s inclusion of the phrase “divided by Wife’s total years of TCRS service” in the coverture fraction allowed Husband to receive more than they agreed to and would allow Husband to receive benefits based on an increase in value accumulated by post-divorce contributions.

Tennessee authorizes two methods for dividing pensions in divorces: present value or deferred distribution.

Present value is an actuarial method of calculating the current value of a future income stream that requires the trial court to place a present value on the retirement benefit as of the date of the final decree. Once the present cash value is calculated, the court may award the retirement benefits to the employee-spouse and offset that award by distributing to the other spouse some portion of the marital estate equivalent to the spouse’s share of the retirement interest. This method is preferable when the marital estate includes sufficient assets to offset the award.

The deferred distribution method allows the court to determine the formula for dividing the monthly benefit at the time of the final order but delay the actual distribution until the benefits become payable. Thus, the deferred distribution method allows the nonemployee spouse to receive their marital share in the future instead of at the time of divorce. When vesting or maturation is uncertain or when the retirement benefit is the parties’ greatest or only economic asset, courts prefer the deferred distribution method to distribute unvested retirement benefits.

Here, Wife’s TCRS account had not vested because she was still working and contributing to her account. It also was her greatest asset and undisputed that she lacked sufficient liquid assets to fund a present distribution of the present value of Husband’s marital interest in her TCRS account.

Finding that the deferred distribution method was appropriate, the Court analyzed the trial court’s application of it:

The deferred distribution method is calculated into steps: (1) the coverture or marital fraction is multiplied by a percentage that represents the nonemployee spouse’s equitable interest in the marital portion of the retirement benefits; (2) and the resulting percentage is multiplied by the employee spouse’s total monthly retirement benefits to calculate the amount due to the nonemployee spouse. The coverture fraction represents the “marital portion,” which is then equitably divided between the parties as marital property.

The trial court used the following to compute the first step: 22 years of marriage divided by Wife’s total years of TCRS service at retirement, said fraction to be multiplied by 27%. The resulting percentage of that calculation was then ordered to be applied to Wife’s monthly TCRS retirement.

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The parties do not dispute that they were married [] for 22 years, which is the number represented by the numerator in the trial court’s coverture fraction. The trial court left in the denominator as an unknown—Wife’s total years of TCRS service at retirement—a number that will only be determinable at Wife’s retirement. The parties agreed that Husband should receive “27% of the marital portion of the retirement account,” which is reflected in the final order. Nothing in the trial court’s application of the coverture formula was erroneous or in contradiction to Tennessee law.

Finding that the trial court properly applied the parties’ agreement, the Court affirmed the trial court’s judgment.

Thompson v. Thompson (Tennessee Court of Appeals, Middle Section, February 9, 2022).

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