Divorce Law Journal

U.S. Supreme Court Decides Pension Beneficiary Following Divorce And Death

The U.S. Supreme Court issued a unanimous decision in Kennedy v. DuPont. The Court held the plan administrator of an ERISA benefits plan should pay plan benefits to wife #1, who was the designated plan beneficiary on a designation executed during the marriage and not to wife #2, who was married to the deceased participant spouse at the time of his death. The divorce decree in question awarded 100% of the deceased participant's benefits to participant, not wife #1. However, participant failed to change his beneficiary designation after the divorce.

SCOTUS BLOG points out, The Court, however, did leave open for the future a related question: if an ex-spouse is handed the benefits by a plan manager, might they still have to be surrendered, once the payout was completed? A footnote indicated that the Court on Monday was only resolving how federal benefit law applied to the initial distribution of plan payments, not their subsequent fate.

Here is the syllabus.

Hines v. Carpenter, Ky COA, Damages From Supersedeas Bond Pending Appeal Of Child Support

Hines v. Carpenter, _ S.W.3d _ (Ky. App. 2009), 2006-CA-002173-MR

The trial court entered a summary judgment in favor of Hines for back child support owed by Carpenter.  Carpenter appealed the judgment and posted a supersedeas bond to stay the collection of the judgment while the appeal was pending.  The Court of Appeals affirmed the summary judgment in favor of Hines.  Then a QDRO was entered by the trial court, requiring that Hines be paid 50% of Carpenter’s monthly benefit until the sum of $149,495.01 was paid in full, or the Appellants die, or Carpenter dies, whichever first occurs. Hines then filed a motion to compel Carpenter to pay a lump sum of $14,175 for damages allegedly incurred by the posting of the supersedeas bond.  The trial court denied the motion to compel.  This appeal followed.  
   The sum of $14,175 is equivalent to the 21 monthly payments that Hines would have received during the pendency of the appeal.  Hines argued the motion to compel should have been granted because interest on the uncollected judgment was accruing at more than twice the rate of the current monthly payments by the pension plan.  She also argued that the full judgment would never be recouped since Carpenter, who was sixty-two years old at the time the motion to compel was filed, would have to live another 18 years for them to receive just the principal amount of the judgment.  
KRS 26A.300(1) prohibits the collection of damages on a first appeal as a matter of right.  Carpenter’s appeal was his first on this issue.  Therefore, the relief Hines requested was statutorily forbidden.  
AFFIRMED

Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates

New Briefs Ordered In U.S. Supreme Court ERISA Case

We posted here about the QDRO case in the United States Supreme Court (Kennedy v. Plan Adm. for DuPont Savings) and linked to the oral arguments and indirectly linked to the briefs. Now SCOTUSBLOG advises that the court has ordered an additional issue to be briefed. Just letting you know so that if the opinion is rendered upon some basis nowhere to be found in the existing briefs and arguments, that may be the reason.

U.S. Supreme Court Hears Oral Argument Yesterday In QDRO case

Kennedy v. Plan Adm. for DuPont Savings was heard by the United States Supreme Court yesterday. At issue is whether a divorce agreement waiving survivorship pension rights is sufficient to defeat an unchanged beneficiary designation. The 5th circuit had held that a QDRO was the only way to defeat a pension beneficiary designation, creating a conflict between federal and state law. SCOTUSBLOG has posted the briefs and a summary of the issues at its companion SCOTUSWIKI. A transcript of the oral argument link is republished here.
We reported briefly here on this case in September and we'll keep you posted when it is decided.

QDRO Needed If Alternate Payee Gets Nothing?

I couldn’t figure out why in the world a plan administrator recently wanted a QDRO when the alternate payee was getting nothing under the Marital Settlement Agreement. Now I do. The 5th circuit ruled a QDRO was the only permissible way to release pension rights and in the absence of a QDRO the divorced spouse got it all upon the participant’s death where the employee never changed the beneficiary designation, even though she waived rights in the settlement agreement. The United States Supreme Court accepted cert and oral arguments are set next month. Here's the post from the Cornell University Law School and here is the critique from the Workplace Prof Blog.

Charges For Processing Domestic Relations Orders

The family law bar has been abuzz about large invoices from Fidelity for processing QDROs and one lawyer says Schwab even charged for approving its own QDRO sample form. Can they do that? Apparently so according to the U.S. Department of Labor if the plan so provides. So, before forking over that fee one could ask to see if the plan authorizes passing on the QDRO processing expense to the participant or alternate payee. It may also be prudent to address in the agreement or judgment which spouse pays the fee.

Doerr v. Doerr, KY, Relief From Agreement, Jurisdition To Modify

Doerr v. Doerr, __ S.W.3d. __ (Ky. App. 2008), 2006-CA-000739-MR

The parties were divorced in 1990 and the divorce decree contained a provision regarding the husband’s retirement benefits. In 2005, when the husband retired from the Louisville AFSS Department of Transportation FAA, he noticed that his ex-wife was receiving more than her intended share of the benefits. In order to correct the error, since the settlement agreement failed to adequately address the issue, he filed a motion with the TC to modify the decree. The TC denied the motion finding that it lacked appropriate jurisdiction and recommended that the husband seek relief in federal court. COA found that the TC does have proper jurisdiction under 5 CFR § 838.101 (a), which specifically states that state courts have the authority to resolve disagreements concerning validity or provisions of any court order. Reversed and remanded.
Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates

Hibdon v. Hibdon, Valuation (KY) Of Defined Benefit Pension Plan

Hibdon v. Hibdon, ___ S. W. 3d ___(Ky. App. 2007)

Husband appealed from order of the Bullitt County Circuit Court (TC), confirming Domestic Relations Commissioner’s (DRC's) report, dividing his pension plan with Ex-wife, contending that TC erred in its computation of the present value of the plan.

Husband and Ex-Wife were married for 27 years. Husband began earning his pension benefits shortly after the parties married. The primary disagreement between the parties concerned the present value of Husband’s defined benefits pension plan. However, at the hearing on this issue, only Ex-Wife offered evidence in regard to the calculation of the plan's value. Included in Ex-Wife's evidence was a pension valuation which utilized the monthly benefit amount Husband would receive if he continued to work until his normal retirement age, multiplied by 174 months (Husband’s post-retirement life expectancy), and then discounted to present value by 2.25% per local rule. DRC’s findings of fact and conclusions of law concluded that Husband’s pension plan had a value equal to that calculated by Wife, to be discounted for present value by 2.25%, and the entirety of that amount was marital property. DRC did not explain how he arrived at a 2.25% annual discount rate, nor does the rule allow for the Commissioner to explain the influence of the annual inflation rate or other essential data required to provide a competent analysis of the pension plan's present value.

After no exceptions were filed within ten days, TC adopted DRC’s report in its entirety. Husband then filed a motion pursuant to CR 59.05 to alter or amend TC’s order adopting DRC’s report, asserting that DRC accepted Ex-Wife’s erroneous evidence regarding the value of his pension plan. TC assigned matter to DRC for a recommendation as to whether TC’s order should be altered or amended. After hearing, DRC filed his report recommending that Husband’s CR 59.05 motion be denied because he had not offered any new evidence which was not readily available to him at the property division hearing. Before TC could act on the recommendation, Husband filed a motion for a hearing to contest DRC’s valuation of his pension plan. TC adopted DRC’s recommendation to deny the first CR 59.05 motion and denied Husband’s motion for hearing. This appeal followed.

Ex-Wife argues that Husband’s failures to offer evidence of the present value of the pension and to timely file exceptions to DRC’s report are fatal to his appeal. CA disagreed, finding that TC abdicated its discretion to DRC and erred by adopting a present day value of Husband’s pension plan which was not supported by competent evidence. Further, even if Husband insufficiently preserved the issue for review, a palpable error affecting the substantial rights of an individual resulting in manifest injustice is reviewable, even if insufficiently raised or preserved.
Although the evidence as to the value of the pension was limited and offered only by Ex-Wife, CA held that, as a matter of law, the value assigned to the pension plan was clearly erroneous and the error so serious that it must be considered palpable. TC miscalculated the present value of his pension plan by allowing Husband’s post-divorce earnings to be included in the calculation of the present value of the pension plan. Because Ex-Wife's share of the pension was limited to her interest in its accumulated value earned during the marriage, TC abused its discretion by allowing Ex-Wife to receive a share of the pension which included Husband’s post-divorce earnings. Reversed and remanded for a new hearing to determine the marital distribution of Husband’s pension as of the date of the parties’ divorce.

CA noted that Bullitt County’s local rule regarding establishment of present day value of a pension negates the requirement of expert testimony and is not based upon accepted accounting or economic principles, and that entry of a QDRO dividing the pension would be simpler and is a preferable method of division of pensions.

Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates

Shown v. Shown, Teacher's Retirement Exclusion Where Other Spouse Has SEP IRA

Shown v. Shown, ___S.W.3d__ (Ky. 2007)

PUBLISHED: REVERSING
PANEL: SCOTT PRESIDING; MINTON, NOBLE AND SCHRODER CONCURRING; CUNNINGHAM CONCURRING IN RESULT ONLY; ABRAMSON NOT SITTING
COUNTY: OHIO
DATE RENDERED: 9/20/2007

Ex-Wife appealed to SC from CA opinion that affirmed TC’s order providing that Ex-Husband’s Kentucky Teacher's Retirement Account would be fully excluded from classification and division of the parties’ marital property pursuant to KRS 161.700(2). Ex-Wife argued to SC that both TC and CA erred in failing to give effect to the provisions set forth in KRS 403.190(4).

At time of trial, Ex-Husband had approximately $81,410 in his KTRS account while Ex-Wife had approximately $1,896 in her Fidelity Simplified Employee Pension (SEP-IRA). Ex-Husband argued to TC that his KTRS account was exempt from classification and division as marital property under KRS 161.700(2), while Ex-Wife argued her SEP-IRA qualified as a retirement account and therefore KRS 403.190(4) overrode KRS 161.700(2) and operated to limit the amount of the KTRS funds that Ex-Husband could claim as exempt. CA affirmed TC’s opinion, holding that KRS 403.190(4) and KRS 161 .700(2) were in conflict, and thus, pursuant to principles of statutory construction, the exemption provisions set forth in KRS 161.700(2) would control over the provisions set forth in KRS 403.190(4). CA held that, alternatively, KRS 403.190(4) is inapplicable unless both spouses have an account that qualifies as a "retirement-benefit" as is defined in KRS 403.190(4), and held that Ex-Wife’s SEP-IRA was not such a "retirement benefit" as defined in that statute.

SC found no conflict between the two statutes. SC held that KRS 161.700(2) specifically exempted the KTRS retirement benefits accumulated by Ex-Husband during the marriage from being classified and divided upon divorce, but that the language set forth in KRS 403.190(4) clearly anticipates statutes such as KRS 161.700(2) and thus, by the plain language of the statute, KRS 403.190(4) is meant to be read in conjunction, not in conflict with, KRS 161.700(2). Furthermore, SC held that any retirement plan that is covered by ERISA is subject to the application of KRS 403.190(4), and as Ex-Wife’s SEP IRA was an employer funded plan covered by ERISA, KRS 403.190(4) applied to the classification and divisibility of the parties’ retirement accounts.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.

Another QDRO Horror Story: QDRO Sole Route to Waiver of Pension Rights

From The Family Law Prof Blog:

The Fifth Circuit Court of Appeals holds that a QDRO is the only route to waiver of pension rights upon divorce. This case involved Decedent-Husband, who was a DuPont employee and participant in its savings and investment plan (SIP). Decedent had signed a beneficiary-designation form in 1974, identifying Wife as the SIP’s sole beneficiary. Decedent and Wife were divorced in 1994. In the divorce decree, Wife agreed to be divested of “all right, title, interest, and claim in and to … the proceeds therefrom, and any other rights related to any … retirement plan, pension plan, or like benefit program existing by reason of [decedent’s] employment.” However, no QDRO was ever submitted to DuPont. Decedent never changed or removed the Wife as the SIP beneficiary.

Decedent’s estate demanded DuPont distribute SIP funds to the estate, claiming that Wife’s beneficiary designation was invalid under the Texas Family Code, which provides that spousal beneficiary designations are rendered invalid by a divorce. While the district court held that federal law preempted state law, it found that a federal common law approach applied, allowing waiver of the benefits.

The court of appeals reversed, finding that the anti-alienation provision of ERISA applied to this plan because it was a pension plan, distinguishing the district court’s common-law waiver approach as having been applied only to life insurance plans, to which the anti-alienation provision does not apply.Moreover, the court rejected the estate’s argument that a “waiver” is not an “alienation” and thus does not run afoul of the anti-alienation provision. Rather the court concluded that:

"In the marital-dissolution context, the QDRO provisions supply the sole exception to the anti-alienation provision, they exempt a state domestic-relations order determined to be a QDRO, under the standards set forth in ERISA… When, as here, ERISA provides a specific mechanism – the QDRO – for addressing the elimination of a souse’s interest in plan benefits, but that mechanism is not invoked, there is no basis to formulate a federal-common-law rule. Requiring DuPont to recognize the waiver in this situation would conflict with ERISA by purporting to determine rights to pension-plan benefits in a manner not authorized by the QDRO provisions, 29 U.S.C. § 1056(d)(3), and therefore, not permitted by the anti-alienation provision, 29 U.S.C. § 1056(d)(1). "

Kennedy v. Plan Administrator for DuPont Saving and Investment Plan, U.S Court of Appeals for the Fifth Circuit, August 15, 2007
Opinion online