Double Trouble

Metro. Life Ins. Co. v. McDonald, ___ F. Supp. 3d ___, 2019 WL 2419659 (E.D. Mich. 2019)

(a) Facts: Husband wife were divorced in Florida. Their divorce decree incorporated a property settlement agreement providing that the husband would name the wife as beneficiary of his employer-provided life insurance.
Despite the agreement, the husband named his second wife as beneficiary of the policy. Upon his death, both wives claimed the proceeds, and the insurer filed an interpleader action in federal court.

(b) Issue: Who is entitled to the policy proceeds?

(d) Summary of Rationale: ERISA generally prohibits the assignment of ERISA-regulated benefits, but not if the assignment is made in a QDRO. So the key question was whether the divorce decree, which incorporated the agreement, was a QDRO.

The decree expressly assigned benefits to the wife, and it did not require the plan to make payments that the employee had not earned. It stated the parties’ full names. It did not state their mailing addresses, but it did state the address of the former marital home, which had not yet been sold at the time of divorce. Since the parties could actually be contacted through the home, their mailing addresses were effectively specified. The decree stated the amount assigned –100% of the policy proceeds, in one single payment.

The second wife argued that the decree did not expressly state the name of the plan. But it referred to “husband’s General Motors Corporation life insurance policy.” 2019 WL 2419659, at *3. The second wife noted that the husband had five or six other policies, but he had only one policy through General Motors. The agreement sufficiently indicated the name of the plan. Because the decree was a QDRO, ERISA’s antiassignment provision did not apply.

The second wife argued that the insurance provision was not enforceable under state law. In contrast to most federal cases, including the Garcia and Christopoulos cases cited above, the court was willing to reach the state law issue. But the court rejected the state law argument on the merits. “The Court is unpersuaded that Florida law prevents divorcing spouses from agreeing to maintain one spouse as the primary beneficiary of the other’s lifeinsurance policy.” Id. at *4.

Observations:

1. Prudent parties do not gamble on whether a federal court will find after the fact that a divorce decree is a QDRO. The wife in McDonald should have insisted that the state court enter a formal QDRO directing the husband to name her as beneficiary. The wife is fortunate that the divorce decree met the QDRO requirements; many divorce decrees do not.

2. The court made no reference to legislative history strongly suggesting that the address requirements are satisfied if the plan administrator actually knows the address from other sources:

The Committee intends that an order will not be treated as failing to be a qualified order merely because the order does not specify the current mailing address of the participant and alternate payee if the plan administrator has reason to know that address independently of the order.

S. Rep. No. 98-575, at 20 (1984), reprinted in 1984 U.S.C.C.A.N. 2547, 2566. But the court’s emphasis on whether the administrator could actually contact the parties is quite consistent with the legislative history.

3. The Florida state judge who entered the divorce decree obviously held that the insurance provision was permitted by Florida state law. It is unclear what authority a federal court would have to reach a contrary result. As Garcia and Christopoulos both held, ERISA was not intended to give federal courts appellate jurisdiction over state courts on issues of substantive state domestic relations law. The reference in ERISA to state domestic relations law was meant to ensure that state court orders are given under the color of state domestic relations law, not to give federal courts jurisdiction to question state court orders on questions of pure state law.