Divorce Law Journal

Snodgrass v. Snodgrass, Ky COA, CR60.02(f), Military Retired Pay

Snodgrass v. Snodgrass, __ S.W.3d __ (Ky. App. 2009)

 

 In divorce proceedings, the parties agreed on all issues, except for the division of husband’s military retirement.  Husband served in the military for approximately 4 years prior to the parties’ approximate 14 year marriage.  A hearing was held before a Domestic Relations Commissioner on the division of retirement benefits; however, there is no proof in the record that husband actually received notice of it, waived his right to participate in it, waived his right to have the hearing recorded, or waived any other right or protection on account of his military service.  Husband was deployed overseas during the proceedings and unrepresented by counsel.  The trial court adopted the DRC’s recommendations and awarded the wife 46% of husband’s retirement.  No further activity took place on this matter for over six years.  Eight months prior to husband’s retirement, the wife submitted a form to DFAS requesting 46% of husband’s disposable retired pay, with no distinction between marital and nonmarital portions.  This translated to wife receiving 82% of the marital portion of the benefit and husband receiving 18%.  It was not until his retirement that husband realized something was wrong.  He hired counsel and filed a motion for relief pursuant to CR 60.02(f).  Due to several procedural and substantive delays, husband’s motion was not heard for another year and a half.  The trial court denied his motion, except it did prohibit the wife from receiving any portion of the benefit attributable to husband’s post-divorce increases in rank and pay.  Husband appealed.

    There are three factors that must be met in order to obtain relief under CR 60.02(f):  1) none of the provisions of CR 60.02 (a)-(e) apply, 2) whether the moving party had a fair opportunity to present his claim at the trial on the merits, and 3) whether the granting of relief would be inequitable to other parties.  COA found all three factors weighed in husband’s favor: 1) No evidence supports the applicability of CR 60.02 (a)-(e), 2) Husband lacked the opportunity to be present at the hearing, and 3) Granting relief would not be inequitable to wife because the court had already held that she is only entitled to a share of the marital portion of the retirement benefit and husband did not seek more than that.

    The decree that originally awarded wife 46% of the retirement benefits contained no distinction between marital and nonmarital property.  Therefore, the decree conflicted with the court’s order denying CR 60.02 (f) relief, which states that wife is only entitled to a share of the marital portion of the benefits, and must be corrected.  The decree is also problematic since it did not explicitly first assign each spouse their nonmarital property before dividing the marital property.  As a result, it is unclear what the decree intended the outcome to be for the division of military retirement benefits.  The COA came up with four different possibilities, and narrowed it down to two using logic and the law: 1) the trial court intended to award wife 46% of the marital portion and 0% of the nonmarital portion, or 2) the trial court intended to award wife 46% of the benefit earned up to the point of divorce, but not what husband earned after the divorce.  The COA remanded for the trial court to determine how the decree should be corrected and/or clarified.  The COA referred the trial court to DFAS’s pamphlet entitled Uniformed Services Former Spouses’ Protection Act, Dividing Military Retired Pay for guidance and recommended language.  When dealing with the division of military retired pay of an as-yet-ineligible service member, COA found the language in section IV.c. of the pamphlet regarding “hypothetical awards” to be consistent with Kentucky law. 

Next, COA noted that although husband chose to proceed unrepresented by counsel, he was still protected by the Soldiers’ and Sailors’ Civil Relief Act of 1940.  Thus, even when a service member does not ask for a stay in the proceedings, the Act requires that the trial court determine that the military service of the party would not have a material, adverse effect upon his rights before going forward.                    

Finally, COA did not find error in the fact that husband had not appealed the decree or that he waited years to file a CR 60.02 motion.  The decree on its face seemed to accomplish what husband wanted and he only realized the error shortly before he retired.  Husband promptly acted upon finding the error. 

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

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

Boone v. Ballinger

BOONE V. BALLINGER___S.W.3d___(Ky. App. 2007)
De facto custodian; doctrine of waiver and estoppel; Rebuttable presumption of paternity; Marital property (401k account)
2006-CA-001257
TO BE PUBLISHED: REVERSING AND REMANDING (ABRAMSON)
DATE RENDERED: 5/4/2007

Several months into dissolution proceedings, Kelly learned for the first time that the two youngest children born during his fifteen-year marriage to Melinda were not his biological daughters. Kelly had been a devoted father to the three-year-old and six-year-old girls, performing the majority of the everyday tasks related to their upbringing and essentially serving as their primary parent. Genetic testing revealed that the girls’ biological father was Melinda’s boss, Daniel, with whom Melinda had been having an affair for seven years. Daniel was a friend of the family and the godfather of the older girl. Both Melinda and Daniel acknowledged that when Melinda became pregnant with each girl, they realized that Daniel might be the father, but neither took any steps to learn the truth and they continued to allow Kelly to believe that he was the father of the girls and to act in that role until Melinda instigated divorce proceedings. Confronted with certified DNA results that established that Daniel was the biological father, Kelly sought de facto custodian status, relying on his central parenting role throughout the girls’ lives. The trial court concluded, after an evidentiary hearing, that Kelly was indeed the de facto custodian and further that Daniel and Melinda were estopped from denying that Kelly was the legal father of the girls.

De Facto Custodian:

On appeal, Melinda and Daniel challenged the trial court's application of KRS 403.270 and its resulting conclusion that Kelly is the girls' de facto custodian. They contend this statute was unavailable to Kelly since he was not the sole caregiver for the two girls but rather provided for them “alongside the natural parent (Melinda).” Following Consalvi v. Cawood, CA agreed with Daniel and Melinda, holding that “it is not enough that a person provide for a child alongside the parent” in order to qualify as a de facto custodian, but rather he must “literally stand in the place of the natural parent.” 63 S.W.3d 195 (Ky. App. 2001)

Waiver of Superior Custody Rights:

Though Kelly did not qualify for de facto custodian status under Kentucky law, CA held that Daniel’s conduct may preclude him from displacing Kelly altogether in the girls’ lives. Even after the adoption of the de facto custodian statute, Kentucky courts continue to recognize the applicability of the doctrine of waiver in a child custody dispute. Accordingly, CA held that on remand the trial judge should address whether Daniel has waived the typically superior custody rights of a biological father. The waiver of a parent's superior custodial right has previously been recognized in two distinct scenarios. CA held that this case presented a third factual scenario: waiver of a biological father's custodial right as against the husband to whom the mother was married when the child was born and who has been led to believe that he is the child's father. Daniel maintained that waiver cannot apply in this case because waiver necessarily entails a knowing and voluntary surrender of a known right. He claims no waiver could occur until he knew the girls were actually his biological daughters. CA disagreed, because Daniel was aware of the possibility at the time each child was born.

Emphasizing that the girls were always in their mother's custody, Daniel also sought to forestall application of the waiver doctrine by citing B.F. v. T.D., 194 S.W.3d 310 (Ky. 2006) for the proposition that waiver can only apply if the children are not in either parent's physical custody. B.F. involved a same-sex couple, one of whom adopted a child who was then raised by both of them. There was no marital dissolution involved when the couple discontinued their relationship, so the non-adopting partner tried to establish her de facto custodian status. She was unsuccessful and the trial court held that she had no standing to pursue custody. CA and the Kentucky Supreme Court affirmed, citing KRS 403.260(4) (repealed in 1980) which limits standing to initiate a custody proceeding to the parents and those who have physical custody of the child. However, CA held that B.F. did not preclude application of waiver in this case. Unlike the domestic partner in B.F who had no standing to initiate a custody proceeding and thus place the issue before a court, Melinda placed the custody issue before the trial court when she filed for dissolution; she and Kelly were parties to the proceeding as the girls' parents and Daniel, deemed a “necessary party” by the trial court, was allowed to intervene. At that juncture, all three adults were properly before the court and the issue of waiver was relevant to the standard required to gain custody. The factors to be considered when determining whether a parent has waived his or her superior custody right include: the length of time the child has been away from the parent, circumstances of separation, age of the child when care was assumed by the non-parent, time elapsed before the parent sought to claim the child, and frequency and nature of contact, if any, between the parent and the child during the non-parent's custody.

Doctrine of Paternity by Estoppel:

CA held that the doctrine of paternity by estoppel adopted in S.R.D. v. T.L.B., 174 S.W.3d 502 (Ky. App. 2005), would not apply so as to estop Daniel and Melinda from seeking a paternity determination. The trial court relied on S.R.D. v. T.L.B. in estopping Daniel and Melinda from challenging Kelly's legal father status. However, that case involved estopping a husband from severing a parental relationship with a daughter born during his marriage who was eventually determined not to be his biological child. Although that case had the same “misled husband” scenario as this case, estoppel was employed to preserve the relationship (both emotional and financial) between the child and the only father she had ever known, not to sever the biological father's rights to establish his genetic connection to the child. Moreover, if a biological father is to be precluded from establishing any legal relationship to his child born during the mother’s marriage to another man, or if he is to be limited in his options, CA stated that such preclusion or limitation must be established by the legislature. The Kentucky General Assembly has not adopted either Uniform Act or any other statutory mechanism curtailing the legal rights of a biological father where his child is born during the mother’s marriage to another man.

CA recognized that an inconsistency exists between Consalvi and the doctrine of paternity by estoppel that was adopted in S.R.D. The focus of “paternity by estoppel” is on the child and the parent-child relationship that has developed. On the other hand, Consalvi holds that a man who provides care and financial support alongside the mother cannot acquire de facto custodian status so as to maintain a father-child bond after the parties' divorce. This result, of course, completely ignores the parent-child relationship that may have developed, a relationship which S.R.D. considered paramount Therein lies the irony: if a misled husband decides to “run” in order to avoid any parental support obligations, he would be prohibited from doing so by S.R.D. and would remain financially bound to the child, but should he desire to “stay” and maintain a relationship with the child, Consalvi, literally applied, says that he cannot be the de facto custodian and is not entitled to custody or visitation. Fortunately, a man who was led to believe he is the father of a child born during his marriage may be able to maintain a relationship with the child in those instances where the biological father has waived his superior right to custody.

If the trial court, on remand, finds that Daniel waived a biological parent's superior right to custody, the result would be to place Kelly, a non-parent who would otherwise have no equivalent right, on an equal footing with Melinda and Daniel in matters concerning custody and visitation. Conversely, such a finding, though conveying standing on Kelly to seek custody and visitation, does not necessarily result in Daniel’s loss of his right to seek the same. Once a non-biological parent is deemed to have standing to seek custody vis-à-vis the biological parents, the ultimate decision by the trial court as to who will be awarded physical custody of a child is dependent upon the best interests of that child.

Division of 401(k) account and exempt KTRS account:

CA held that the trial court erred in deeming it marital property without considering Kentucky Revised Statute (KRS) 403.190(4). By application of KRS 161.700(2), Kelly's entire Kentucky Teachers’ Retirement Services account is exempt. The amount to which Melinda's 401(k) account may be exempted is governed by the limitation found in KRS 403.190(4), i.e. her account is exempt up to an amount that does not exceed the value of Kelly's KTRS account.

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

Online Info For Dividing Thrift Savings Plans

Online resources for dividing U.S. Government Thrift Savings Plans for active duty military can be found here. Resources for federal civilian employees can be found here.