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Equitable Distribution: Patterson Saves Retirement

Does the entry of a court-ordered equitable distribution create an interest to a retirement asset? Do you even need to file a DRO or QDRO when an equitable distribution consent order is signed by a judge? See how the North Carolina Court of Appeals saves the award of the marital portion of a retirement account that had not been disbursed before the intestate death of the former husband.

Patterson ex rel. Jordan v. Patterson, 529 S.E.2d 484 (N.C. App. 2000)

(a) Facts: In Patterson, Carolyn and Karl Patterson were married in August 1963. The parties divorced in April 1988. During the marriage Karl participated in a University of North Carolina at Charlotte (UNCC) retirement account administered by TIAACREF. An equitable distribution Consent Order and Judgment (the “Order”) was filed March 18, 1991. The Order stated that Carolyn should receive a 20 percent interest in the date of separation value of Karl’s retirement plan. To preserve Carolyn’s interest in the retirement account, a QDRO had to be entered by the court. A Property Settlement Agreement was incorporated by reference into the Consent Order. Unless otherwise provided by the Agreement all provisions of the Agreement were binding upon the heirs, next of kin, executors, and administrators of each party. Karl Patterson married Paula Patterson in February 1990. Karl named Paula the sole beneficiary of the UNCC retirement plan. Karl died intestate in November 1996. No QDRO had been entered pursuant to the Property Settlement Agreement. Carolyn filed a motion requesting entry of a mandatory injunction. The injunction required Karl’s estate to consent to the entry of the QDRO preserving her 20 percent interest in the UNCC retirement plan valued on the date of separation.

(b) Issue: The first issue in Patterson, is whether a court-ordered equitable distribution under G.S. § 135-9 effectuates a valid assignment of retirement benefits upon entry? The second issue is whether the entry of a qualified domestic relations order is required when the information in a court-ordered equitable distribution judgment contains the all necessary information to effectuate a QDRO?

(c) Holding: In Patterson, the Court found that pursuant to the language of G.S. § 135-9, a Consent Order, once signed and entered by the trial judge becomes a “court-ordered equitable distribution.” Upon entry, the Defendant’s interest is created and that interest existed separate from any prospective QDRO.

(d) Rationale: The North Carolina Court of Appeals in Patterson held that “the broad language of G.S. § 135-9, coupled with the relevant provisions of G.S. §50-20 . . . indicate that assignment of a state retirement plan under the North Carolina scheme may be effected by court orders other than a QDRO.” The Court, citing G.S § 50-20(b)(3) (1987), held that “[t]he Court may require distribution of the [pension] award by means of a qualified domestic relations order, as defined in section 414(p) of the Internal Revenue Code of 1986 . . . .” The Court held it was immaterial whether a QDRO was entered as the interest in the retirement account was acquired upon execution of the Consent Order. The Court further held that “if the plain language of the statute is clear, courts must give statute its plain meaning.” The Court noted that the North Carolina Supreme Court in Campbell v. Church, 259 S.E. 2d 558, 563 (1979) stated that “the use of “may” generally connotes permissive or discretionary action and does not mandate or compel a particular act.”
Cheryl Howell, a Professor of Public Law and Government at the University of North Carolina School of Government, notes there is no requirement that a DRO or QDRO be a document separate from the equitable distribution. The division of a retirement plan can be accomplished in an equitable distribution judgment if all requirements for the QDRO pursuant to 29 U.S.C. § 1056(d)(3)(B)(ii) are met. Cheryl Howell, So someone forgot to draft that QDRO, Now what?, UNC School of Government (July 24, 2015, 5:00 PM), Howell explains that 29 U.S.C. § 1056(d)(3)(B)(ii) requires that a domestic relations order contain (1) the name of the parties; (2) the amount to be paid to the alternate payee; (3) the number of payments; and (4) the name of the plan. Howell points out that in Patterson, the non-ERISA governmental retirement plan was distributed at the time that the equitable distribution judgment was entered. The equitable distribution judgment provided that the non-participant party was entitled to receive a percentage of amounts received by the other upon retirement.

Lesson: In an equitable distribution case where equitable distribution claims are settled through entry of a Consent Order, signed by a judge pursuant to G.S. § 135-9, the Consent Order becomes a court-ordered equitable distribution. Any interest in a retirement account is created at the time of entry said order.