Divorce Law Journal

Prior to Division of Teacher Retirement Court Must Consider the Effect of Social Security Contributions or Offsets: Ky Court of Appeals Publsihed Opinion

SHOWN V. SHOWN

In a previous related case, the Supreme Court held that Husband’s Kentucky teacher’s retirement account was considered marital property under KRS 403.190(1). Shown v. Shown, 233 S.W.3d 718 (Ky. 2007). Subsequently, the trial court divided the marital portion of husband’s retirement without consideration of the complex financial calculations used to make the distribution. In fact, the court took no proof on the issue and granted wife 50% of the marital portion of the account. Husband appealed arguing it was inequitable for the trial court to divide his teacher’s retirement account without considering its unique characteristics, primarily the fact that his teacher’s retirement is a substitution for social security. The Appellate Court agreed, reversing and remanding the matter to the trial court so that it can exercise its KRS 403.190 discretion and take expert testimony to "compute the present value of a Social Security benefit that Robert would have received had he contributed to Social Security. That value should be deducted from the present value of Robert's teachers' retirement, prior to division of the parties' pension plans."

Digested by Elizabeth M. Howell.

 

IRA Beneficiary Designation in Favor of Former Spouse: Ky Supreme Court Published Opinion

RUTH ANN SADLER V. BARBARA LOIS VAN BUSKIRK

Husband died many years after his divorce, but despite his remarriage, he had not removed his former wife as the beneficiary of his IRA. In the parties’ marital settlement agreement they had agreed to make “no claim upon any interest owned by the other, now or in the future” of their Individual Retirement Accounts.

The court looks to the holdings made in Ping, Hughes and Napier and extends their precedent to the retirement account context. The Supreme Court holds a divorce alone does not give rise to a presumption an ex-spouse is removed as a beneficiary of a retirement account; however, parties have the power to divest an interest of a beneficiary by agreement. The agreement must be clear and unambiguous and a general waiver is not enough. In this case, the parties clearly and unambiguously agreed to assign the exclusive ownership of the IRA to husband. Therefore, the former wife has no beneficiary interest in the IRA.

Digested by Elizabeth M. Howell.

 

Published Family Law Opinion from Ky Court of Appeals Today: Choice of Law to Determine Whether State Disability Retirement Benefits are Marital Property

Kirilenko v. Kirilenko

In a KY divorce, the trial court erred in applying KY law to characterize CN state disability retirement benefits as nonmarital property. Instead, the Restatement (Second) of Conflict of Laws "most significant relationship"  test should be applied and CN law is more appropriate.

Award of cost of living adjustments to civil pension affirmed by Ky Court of Appeals in published opinion January 16, 2015

BROWN V. BROWN

In divorce proceedings, husband had a civil pension. The marital portion was divided equally between the parties using the deferred distribution method. Husband argued that the award should not include the cost-of-living adjustments (COLAs) he received after the divorce. The Circuit Court concluded wife was entitled to the COLAs corresponding to her share of the pension. The Appellate Court affirmed the Circuit Court’s conclusion holding the  wife's portion of the marital retirement should include the COLAs, as they are not earnings attributable to the husband's post-decree efforts.

 

No Child Support Credit for Child's Social Security Retirement Dependent Benefit. One Published Family Law Opinion from Ky Court of Appeals Today

N.J.S. v. C.D.G.  Because the Ky child support statute does not authorize a credit against child support for child’s social security retirement dependent benefit, it was error allow such a credit and to order that payor be reimbursed for child support overpayment from the child’s retroactive lump-sum benefit. Concurring opinion underscores the need for legislative fix as is currently provided for with respect to disability dependent benefits.

Family Law from Ky Court of Appeals Today:Where MSA awarded each spouse his/her own IRAs and each waived any claim to the IRA of the other, but husband failed to change his beneficiary designation to someone other than former spouse, Ky Court of Appeals a

Sadler v. Buskirk

Where MSA awarded each spouse his/her own IRAs and each waived any claim to the IRA of the other, but husband failed to change his beneficiary designation to someone other than former spouse, Ky Court of Appeals affirmed trial court’s denial of new wife’s request to declare that former spouse had no rights as beneficiary.

Divisibility of Disability Pension Later Reclassified as Ordinary Retirement Pension, Attorney’s Fees, Bailey v. Bailey, Case Digest, Ky Court of Appeals

Buddy Lee Bailey v. Linda Beth Bailey, No. 2012-CA-000508-MR

Published: Affirming

County: Spencer

Facts

Husband filed for dissolution of the parties’ thirty year marriage in 2004. During his employment, Husband actively participated in his employer’s retirement pension plan. Subsequent to the parties’ separation, Husband was injured and filed for short term disability. The order entered by the Court after mediation included a provision that Husband was to provide to Wife information concerning the retirement account, including the policy, and all information regarding Husband’s disability. Wife was not provided with this information. The trial court entered a limited decree of dissolution in December 2004. In August 2006, the Court entered a judgment against Wife for the value of Husband’s personal property not returned to him. Husband filed a motion in June 2008 to satisfy the judgment. Since the pension issue had not been resolved, the Court also granted Wife’s request that the parties exchange all documents relating to retirement or disability accounts.

In June 2011, the Court entered an order holding that Husband’s retirement pension was not subject to division as marital property because Husband’s retirement pension was converted into a disability pension. Wife filed a motion to alter, amend or vacate the order because she was never provided with the retirement policy documents. Husband was deposed, and Wife received the documents. In January 2012, the Court granted Wife’s motion to alter, amend or vacate the judgment, holding that Wife was entitled to entry of a Qualified Domestic Relations Order allocating one half of the pension benefits accrued from the date of marriage to the date of the entry of the limited decree of dissolution. The court found that Husband’s disability pension would be converted to an ordinary retirement pension when Husband reached the age of 62. Wife was also ordered to satisfy the August 2006 judgment against her, plus statutory interest. Husband filed a motion to alter, amend or vacate the Court’s January 2012 order. The Court denied Husband’s motion after a hearing, and Husband appealed.

Analysis

When the Court ruled on the divisibility of the retirement plan, the relevant plan documents had not been made available to Wife or the Court. Because a full and candid disclosure of the parties’ assets is necessary for an equitable division of property, the Court did not abuse its discretion in granting Wife’s motion. Once obtained, the policy clearly stated that when Husband turned 62 his disability pension would end, and he would become eligible for a normal retirement pension. The Court of Appeals distinguished this case factually from the Kentucky Supreme Court’s decision in Holman v. Holman, 84 S.W.3d 903 (Ky. 2002), which held that disability benefits which replace future income should not be classified as marital property. Husband’s disability benefits would be reclassified on a date certain, which was different from the facts presented in Holman. The ordinary pension benefits that were accumulated during the marriage that would be reclassified as normal pension funds when Husband turned 62 were marital property. Any other conclusion would be inequitable because it could allow a spouse to prevent the other spouse from his or her share of retirement benefits through an election of disability coverage.   

On the attorney’s fees issue, Husband argued that the Court failed to rule on the motion. Wife argued that the Court’s silence on the matter was a denial of attorney’s fees. The Court of Appeals agreed with Wife, stating that attorney’s fees are entirely within the discretion of the trial court, and the Court in this case clearly considered the financial resources of both parties throughout the lengthy proceedings. Nothing in the record could demonstrate that the Court abused its discretion in failing to award attorney’s fees.

Affirmed.

Digested by: McKenzie Cantrell, Attorney, of counsel, Diana L. Skaggs + Associates

 

Willis v. Willis, Ky COA, QDRO Modification, Jurisdiction

Larry Willis v. Ruby Willis

No. 2010-CA-002328-MR

Published: Opinion Reversing

County: Boyle

Larry Willis appealed from the November 30, 2010 order of Boyle Family Court modifying a Qualified Domestic Relations Order entered July 16, 2009.

The parties were married in 1992 and Ruby filed a petition to dissolve the marriage in March 2007. The parties participated in mediation in July, 2007 and reached an agreement which Larry reluctantly signed. On August 22, 2007, Ruby returned to the marital residence to retrieve personal items and furniture, and violence ensued. Larry shot Ruby twice and inflicted a massive head injury by kicking her. She is now permanently disabled and guardians and conservators have been appointed to care for her needs. Larry was convicted of criminal charges in connection with the attack and received five to ten year sentences, to be served concurrently.

On December 22, 2008, the family court entered the final decree of dissolution incorporating the property settlement agreement. Ruby received all the marital property and $91,000.00 from the nonmarital portion of Larry’s retirement as an offset. In July, 2009, Ruby filed a motion to enter a tendered Qualified Domestic Relations Order, awarding $91,000.00 to Ruby and the balance in the amount of $201,536.05 to Larry.

In October, 2010, Ruby moved the family court to modify the QDRO. Because the QDRO referenced the amount in the retirement accounts at the time of the marriage as Larry’s nonmarital property, before large market losses occurred, Ruby requested the family court to amend the QDRO to reflect that his nonmarital portion be reduced by the same market loss as her marital portion.

The family court conducted a hearing and directed both parties to submit proposed findings of fact and conclusions of law. The court entered Ruby’s version and ordered a modification of the QDRO, subtracting $145,699.83 from Larry’s nonmarital portion and awarding the funds to Ruby.

On appeal, Larry argued that the family court abused its discretion in reassigning his nonmarital property to Ruby, that the parties entered into a valid separation agreement, that the family court did not have jurisdiction to modify the QDRO, and that Ruby failed to appeal from either the decree or the original QDRO.

The Court of Appeals agreed with Larry that the family court violated KRS 403.190 in reassigning his nonmarital property to Ruby, that the parties entered into a valid separation agreement, and that family court did not have jurisdiction to modify the QDRO fifteen months after its entry.

Therefore, the Court of Appeals held that the Boyle Family Court abused its discretion in modifying the QDRO and reassigning a portion of Larry’s nonmarital property to Ruby and the family court’s order entered November 30, 2010 is reversed.

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates.

 

 

 

 

 

Copas v. Copas, Ky COA, Division of Military Retired/Disability Pay

Kathy Joan Copas v. Richard Dale Copas

No. 2009-CA-000685-MR and No. 2009-CA-000720-MR

Published:  Opinion Affirming in Part, Reversing in Part and Remanding

County:  Shelby

This opinion addresses the combined appeal and cross-appeal from Shelby Family Court orders modifying the division of Richard’s military retired pay between Richard and his former spouse, Kathy.

There are three issues.  First, did the family court abuse its discretion in utilizing CR 60.02(f) to reopen the order dividing the parties’ marital property?  Second, did the family court abuse its discretion in modifying the language in a previous order concerning division of Richard’s military retired pay?  Third, did the family court abuse its discretion by granting Kathy’s CR 59.05 motion by adding language to the order which designated Richard’s disability benefits as marital property and then dividing it between the parties?  As to the first two questions, the Court of Appeals found no abuse of discretion, but found that the family court did abuse its discretion as to the last issue.

On June 18, 1997, the family court entered a limited decree dissolving the parties’ twenty-five year marriage, reserving judgment on property issues, which were referred to the Shelby County Domestic Relations Commissioner.  The DRC submitted Findings of Fact, Conclusions of Law and Recommendations on May 21, 1998.

Richard earned the right to military retired pay based on thirty years of service and the DRC found that 21 years and 9 months of service accumulated during the marriage and was marital property to be divided equally between the parties.  Both parties filed exceptions, which the family court overruled on September 28, 1999.  Thereafter, the court conducted a hearing on supplemental exceptions.  On November 6, 2000, the court entered an order resolving all outstanding issues including a provision that Kathy receive 50% of Richard’s pension.

Kathy submitted Form 2293 to the Defense Financial & Accounting Service (DFAS), an “Application for Former Spousal Payment of Retired Pay” requesting 50% of Richard’s disposable retired pay per month.  Kathy’s completion of the form as she did disregarded the distinction between marital and nonmarital portions of Richard’s military retired pay.  As a result, she received 50% of the retired pay Richard earned while not married to Kathy, a benefit to which she was not entitled.

At retirement, Richard was entitled to $4400.00 per month, so based on the form Kathy submitted, they each began to receive $2200.00.  Richard sought military disability benefits and the VA determined he was 40% disabled and entitled to receive $568.00 per month.  Federal regulations require offset of military retired benefits by disability benefits so Richard’s non-disability military retired pay was reduced from $4400.00 to $3832.00, divided equally between Kathy and Richard.

In July, 1970 Richard filed a motion requesting family court to direct that Kathy only receive 50% of the portion of his disposable military retired pay attributable to the marriage, and on November 17, 2008 the family court so ordered.  On November 26, 2008 Kathy filed a motion pursuant to CR 59.05 to alter, amend, or vacate the November 17, 2008 order on the grounds that the family court improperly modified the 1999 Property Order with respect to division of Richard’s military retired pay.  She also filed a motion requesting a new trial under CR 59.01 and a motion for additional findings under CR 52.02.  Her CR 59 motion asked the family court to amend its November 17, 2008 order to require DFAS to take Richard’s disability income into account when dividing his military retired pay.

An abuse of discretion standard of review is applied to a family court’s rulings on CR 59.05 and CR 60.02 motions.  The test for abuse of discretion is whether the judge’s decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles.

Although the family court did not specify under which rule it was modifying the 1999 Property Order, the Court of Appeals treated Richard’s motion and the family court’s corresponding order as brought pursuant to CR 60.02.  Because information provided to DFAS was incomplete, DFAS paid Kathy a greater proportion of Richard’s military retired pay than that to which she was entitled.  The Court of Appeals found that DFAS’s misinterpretation of the 1999 Property Order was a sufficient basis for granting CR 60.02(f) relief to allow the family court to adjust the order’s language to meet DFAS ‘s specific requirements.  The Court of Appeals also found no abuse of discretion when the family court modified the language of the 1999 Property Order pursuant to CR 60.02(f).

The Court of Appeals next considered the family court’s granting Kathy’s CR 59.05 motion and adding language directing DFAS to take into account Richard’s disability pay when dividing his military retired pay.  Because a retiree’s disposable retired pay is lower when he receives disability payments, the retiree’s former spouse’s portion of the retiree’s retired pay is also reduced.  The Court of Appeals acknowledged the potential inequities which may result when a retiree elects to receive disability payments, but noted that both federal and state law prohibits treatment of a retiree’s disability payments as marital property.  The family court’s order erroneously converted Richard’s disability benefits from nonmarital property into marital property in violation of federal law.  Further, the Court of Appeals stated that while a CR 59.05 motion may be used to challenge a CR 60.02(f) order, it may not be used to collaterally attack the original judgment.

The Shelby Family Court did not abuse its discretion in reopening and modifying the 1999 Property Order pursuant to CR 60.02(f) but it did abuse its discretion by requiring DFAS to consider Richard’s disability payments in dividing his military retired pay.  Accordingly this matter was affirmed in part, reversed in part, and remanded for additional proceedings consistent with this opinion.

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates.

 

 

 

McMullin v. McMullin, Ky COA, QDRO, Ambiguous Agreement

McMullin v. McMullin, NO. 2010-CA-000843-MR

Published:  Opinion Affirming

County:     Mercer

      Husband appeals from a post-dissolution QDRO dividing his pension benefits with his ex-wife, arguing that the trial court erroneously interpreted the parties settlement agreement and relied upon inapplicable legal doctrines.

 

        The parties had been married nearly thirty years when they were divorced in 2000.  In their settlement agreement which was handwritten by the wife,  they divided husband’s two retirement accounts: an employer-funded pension fund plan and a 401(k) tax-deferred savings plan.  Husband took the handwritten document to his attorney who drafted a formal agreement based on the handwritten agreement.  Both parties signed the new settlement agreement and it was incorporated into the decree of dissolution.  The agreement provided that the wife would receive one-half the pension at the 20 years of service rate, payable when the pension became payable, and one-half the 401(k) calculated as of the date of dissolution.

 

        In 2009, due to health problems, the husband retired ten years earlier than expected.  He submitted two QDROs, one for the 401(k) and one for the pension.  The division of the 401(k) was acceptable to the wife, but she objected to the QDRO dividing the pension because it used the decree date to calculate her share rather than the date of husband’s retirement, resulting in zero benefit to her.

 

        The Mercer Family Court found that husband had intentionally introduced an ambiguity into the agreement and the doctrine of contra proferentem allowed an inference to be drawn against him.  The trial court held that the implied covenant of good faith and fair dealing required that inferences be drawn against husband with respect to the ambiguity, and further held that husband invoked attorney-client privilege to prevent his lawyer from testifying, providing additional grounds to construe the ambiguity in favor of the wife.  Thus, wife was entitled to one-half the twenty-year rate, calculated at retirement.  The husband appealed on several grounds.

 

        The Court of Appeals reviewed the agreement de novo, giving no deference to the trial court.  It found the agreement was ambiguous and attempted to glean the intention of the parties from the contract and surrounding circumstances.  It was clear that the wife had an intent formed about her entitlement to a portion of the pension even though she did not have a detailed awareness of the plan’s payout chart.

 

        The husband argued that Kentucky law requires division as of the date of divorce, but the court pointed out that the law requires that a pension be valued as of the decree date.  Husband ignored the fact that parties may contract for any division of property they choose, so long as the terms are not unconscionable.

 

        Husband also argued that application of the doctrine of contra proferentem and the implied covenant of good faith and fair dealing were inapplicable and the trial’s reliance was error.

 

        The Court disagreed, finding that husband’s intentional introduction of an ambiguity into the contract would be unconscionable and counter to public policy, noting that the law does not allow an individual to benefit from his own fraud in drafting or procuring a contract and that the clean hands maxim bars relief to those guilty of improper conduct.

 

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates.

 

Young v. Young, Classification and Division of Firefighter's Pension

Young v. Young, 2008-CA-000845-MR

Issue:  Classification and division of firefighter’s pension plan

Published:   Affirming in Part, Reversing in Part and Remanding

County: Kenton

Husband appealed TC’s classification and division of his firefighter’s pension plan as a marital asset.  He claimed his defined benefits plan was exempt from division under KRS 61.690, that premarital contributions were improperly included in its award, and that an incorrect method was used to divide the pension.

The parties were married in 1989, separated in 2003, and a decree of dissolution of marriage was entered on December 12, 2005 reserving the issue of division of husband’s pension administered by the Kentucky Employees Retirement System (KERS).  A supplemental judgment was entered April 8, 2008 concluding the pension was a marital asset subject to division and finding the delayed division method set forth in Poe v. Poe, 711 S.W.2d 849 (Ky. App. 1986) to be the most equitable method of dividing the pension.  Wife was awarded one-half of 194/240 months of service credit as of November 2, 2007, the 20^th anniversary of husband’s participation in the plan.

Husband’s assertion that KRS 61.690 prohibited division of his pension was held to be without merit because the 2000 amendment to the statute which exempted KERS benefits from consideration as marital property was deleted in 2002 and the exemption was not in effect when the divorce was filed or on the date of dissolution.

Husband also claimed that trial court improperly included premarital contributions to the pension, but the CA found that the trial court properly deducted the 24 months of contributions prior to the marriage and the 22 months of contributions made after entry of the decree and thus was unable to conclude the trial court improperly included premarital contribution in its award.

Citing Armstrong, 34 S.W.3d at 86 (citing Clark v. Clark¸782 S.W.2d 56, 62 (Ky. App. 1990), the CA said it is clear “that pension and profit sharing plans should be valued on the date of the divorce decree.”  Since the trial court’s award incorrectly set the valuation date at November 2, 2007 (the date of husband’s twentieth anniversary of participation in the plan, this matter was reversed and remanded for entry of an award valuing the pension on December 12, 2005, the decree date and recalculation of the coverture fraction using the earlier date.

Finally, husband argued trial court erred in utilizing the delayed division method in allocating his pension benefits and should have used the net present value method.  The CA found that the trial court clearly weighed the evidence to determine the proper method of dividing the pension and there was no abuse in the exercise of its broad discretion.

Digested by Sandra G. Ragland, Diana L. Skaggs + Associates

2010 Kentucky Domestic Relations Legislation

The 2010 Session of the Kentucky Legislature enacted the following legislation affecting domestic relations matters.

    House Bill 1is known as Amanda’s Bill in honor of Amanda Ross who was killed in 2009 in a domestic violence incident.  The Act allows judges to order violators of a Domestic Violence Order to wear a global positioning system tracking device to monitor abuses and help make sure they maintain the required distance from their victims.  Felony charges may be brought against DVO violators who attempt to remove a court-ordered tracking device.

    House Bill 289amends relevant sections of Kentucky Revised Statutes to require the Kentucky Employees Retirement System, the County Employees Retirement System, the State Police Retirement System, the Kentucky Teachers’ Retirement System, the Legislators’ Retirement Plan, and the Judicial Retirement Plan to honor qualified domestic relations orders if the orders meet the requirements established by the retirement systems or plan and by this legislation.  Affected statutes are KRS 6.525, 16.645, 61.690, 78.545, 161.700, and 21.540.

    The Act amends KRS 16.505, 61.510, 78.510, 161.220, and 21.540 to define a qualified domestic relations order as any judgment, decree, or order issued by a court or administrative agency which relates to the provision of child support, alimony payments, or marital property rights to an alternate payee and to define an alternate payee as a former spouse, child, or other dependent of a member or retired member of the retirement systems; amends KRS 161.620 to clarify that the minimum benefit payment will not apply if the order reduces the member’s payment below the minimum.  The bill also amends KRS 161.585 to provide procedures for responding to and providing testimony when an employee of the Kentucky Teachers’ Retirement System is subpoenaed; amends KRS 161.700 to conform to KRS 403.190(4); and amends KRS 21.540 to provide authorization for the Judicial Form Retirement System to promulgate administrative regulations.

    Finally, HB 171 amends KRS 382.135 to specify that the in-care-of address is not required in deeds making certain types of conveyances, including deeds which transfer property through a court action pursuant to a divorce proceeding. The link we have to this bill doesn't work. If you have it, please post a comment. Thanks.

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

UPDATE: The Kentucky Supreme Court denied discretionary review and ordered this case not to be published.

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.