Articles Tagged with QDRO

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Sun Life Assur. Co. of Canada v. Jackson, 877 F.3d 698 (6th Cir. 2017), cert. denied, 138 S. Ct. 2624 (2018)

 

(a) Facts: The parties were divorced in 2006.  The divorce decree, which incorporated a separation agreement, ordered the husband to maintain any employer-provided life insurance policies for the benefit of the parties’ daughter until her emancipation.

 

The husband had such a policy, but his uncle was the sole beneficiary.  The husband died in 2013, with the uncle still the only person on the policy.  The daughter, still a minor, made a claim to the policy proceeds, but the insurer paid the uncle. The daughter then sued the insurer in federal court.

 

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

 

(c) Answer to Issue: The daughter.

 

(d) Summary of Rationale: Employer-provided life insurance policies are regulated by ERISA.  Therefore, the plan must pay the named beneficiary, and it cannot follow any contrary state court order.

 

As an exception, however, contrary state court orders are not preempted if the state court order is a QDRO.  Thus, the result in Jackson turned on whether the divorce decree met the QDRO requirements.

 

The first requirement states that the DRO must specify the name and address of the alternate payee.  The daughter was not named in the insurance provision, but she was named in the agreement, and the agreement was incorporated into the decree.  The decree did not state the address of the daughter, but it also incorporated the parties’ parenting plan, which awarded both parties shared custody.  The daughter, therefore, resided with the parties, and the addresses of both parties were stated in the agreement.

 

The second requirement states that the DRO must state the amount of benefits awarded.  The divorce decree clearly required that the daughter receive 100% of the proceeds.

 

The third requirement states that the DRO must state the period of payment.  The decree required that insurance must be maintained until the child’s emancipation.

 

The fourth requirement states that the plan must be identified. The court held that “all employer-provided life insurance” was sufficient to identify the plan.

 

Because the divorce decree met the requirements for a valid QDRO, the plan was required to pay the proceeds to the daughter.

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In re Beeghley, ___ Fed. App’x ___, 2018 WL 3060089 (3d Cir. 2018) (unpublished)

 

(a) Facts: The parties were divorced in Delaware in 1995.  The trial court divided the husband’s pension and ordered the wife to prepare a DRO.  No DRO was ever signed.

 

The husband remarried, and he and his new wife filed a Chapter 13 bankruptcy case in 1997.  The wife intervened, asserting various claims.  She was so litigious that an order was entered requiring court approval for future filings.  A final order was entered in 2001; the wife still had no DRO.

 

The wife also filed a simultaneous claim in federal district court, seeking relief related to the parties’ assets.  Her claim was dismissed as frivolous, and she was again barred from future filings without court approval. The wife appealed and obtained a reversal, but her claim was then dismissed in 2004 for lack of prosecution.  She still did not have a DRO.  She filed some proceeding in Pennsylvania state court in 2011 but failed to serve the husband with due process.

 

In 2014, the wife filed still another federal court action, arguing that it was the husband’s duty to obtain a DRO, which had still not been entered in state court. She sought damages for the husband’s breach of this duty and also sought to reopen the husband’s bankruptcy.  Her claim was denied based upon res judicata and laches by both the bankruptcy and district courts, and the wife appealed to the Third Circuit.

 

(b) Issue: Is the wife entitled to pursue her claim?

 

(c) Answer to Issue: No.

 

(d) Summary of Rationale: The wife is guilty of laches.

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Stephens v. Alliant Techsystems Corp., 714 F. App’x 841 (10th Cir. 2017) (unpublished)

 

(a) Facts: A husband divorced in Utah.  A Utah state court entered at least two DROs dividing retirement benefits, each time reserving jurisdiction to amend the order in the future.  The plan qualified the DROs.

 

The husband retired, and the plan administrator, Fidelity Investments, started sending him checks.  “But rather than cash the checks, Stephens returned the unopened envelopes to Fidelity” on the ground that a QDRO “entered in his Utah divorce case rendered him liable for any amounts intended for his ex-wife (who was awarded a portion of the benefits) but accidentally mailed to him.”  714 F. App’x at 843.

 

Fidelity kept sending checks, and the husband kept returning them.  Finally, Fidelity sent a large check for $152,890.38 for all benefits due up to that point.  Fidelity also sent a 1099-R Form reporting the payment to the IRS as income.  The husband returned the check and filed a pro se action against Fidelity in federal court, seeking to cancel the 1099-R Form on the basis that no money had been distributed to him.

 

The husband further asked the federal court to hold that the most recent Utah QDRO violated ERISA and “to adopt a prior QDRO (with certain modifications) and enter various orders to implement it.”  Id. at 846.

 

The District Court entered summary judgment against the husband, and the husband appealed.

 

(b) Issues: (1) Was the 1099-R Form void, and (2) was the husband entitled to the orders he sought?

 

(c) Answer to Issues: No on both points.

 

(d) Summary of Rationale: The court lacked jurisdiction to rule on whether the1099-R Form was void, as a declaratory judgment action is not proper to determine a party’s tax liability.  See also Sterling Consulting Corp. v. United States, 245 F.3d 1161, 1166 (10th Cir. 2001) (reaching the same result).

 

The order requested by the husband could not be entered, as a federal court lacks jurisdiction to enter DROs:

 

Stephens’ proposed amendment raised an additional claim that parts of the QDRO violated ERISA. To remedy this violation, Stephens asked the district court to adopt a prior QDRO (with certain modifications) and enter various orders to implement it. The district court found it could not give Stephens the relief he sought because (1) the Utah state court that entered the QDRO explicitly reserved jurisdiction to modify it, see R. Vol. I at 357, and (2) QDROs are not subject to ERISA’s preemption provision, see 29 U.S.C. § 1144(b)(7).

 

Stephens does not meaningfully contest either point. Additionally, the QDRO was part of Stephens’ divorce decree, see R. Vol. I at 353, and Stephens fails to explain why the “domestic relations exception” to federal jurisdiction did not prevent the district court from modifying and reissuing a part of his divorce decree, see Leathers v. Leathers, 856 F.3d 729, 756 (10th Cir. 2017) (“The domestic relations exception divests federal courts of the power to issue [or modify] divorce . . . decrees.”).

 

Stephens, 714 F. App’x at 846.

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Carolyn Woodruff, JD, CPA, CVA

In re Lawson, 570 B.R. 563 (Bankr. N.D. Ohio 2017)

Facts: A husband and wife filed divorce proceedings in Ohio. Among the marital assets was the husband’s defined contribution retirement plan. The parties read into the record in the Ohio action an agreement that awarded the wife 50% of the plan account. The court approved the agreement. No DRO was immediately entered.

After the divorce case was filed, the wife filed a petition in bankruptcy. The bankruptcy trustee argued that the wife’s interest in the husband’s retirement plan was part of the estate in bankruptcy. He asked the bankruptcy court to authorize him to seek a DRO in state court and to order the husband not to oppose the DRO.

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Carolyn Woodruff, JD, CPA, CVA

In re Jeffers, No. 14-52328,    B.R., 2017 WL 2838104 (Bankr. N.D. Ohio June 30, 2017)

Facts: A husband and wife divorced in Ohio. The divorce decree awarded the wife an interest in the husband’s retirement benefits.

Before a DRO was entered, the husband filed a petition in bankruptcy under Chapter 13. When a bankruptcy case is filed, all state court actions are automatically stayed. 11 U.S.C. § 362. The wife asked the bankruptcy court to lift the stay so that she could obtain a DRO in state court. The bankruptcy trustee objected.

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Garcia-Tatupu  v.  Bert  Bell/Peter  Rozelle  NFL  Player  Ret.  Plan,  No.  CV 16-11131-DPW,     F. Supp. 3d   , 2017 WL 1398645 (D. Mass. Apr. 18, 2017)

Facts: The husband, a former NFL football player, was divorced from his wife in Massachusetts in 1997. No DRO was entered at the time. The husband died in 2010; he had not remarried. In 2012, the Massachusetts court issued a DRO, nunc pro tunc back to 1997.

The wife requested benefits from the plan under the DRO, the plan denied benefits, and the wife sued the plan. The plan filed a motion to dismiss.

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Dullea v. Pension Benefit Guar. Corp., 241 F. Supp. 3d 155 (D.D.C. 2017)

Background: There are two ways in which state courts can make a deferred future division of retirement benefits. The traditional method is the shared interest approach, which awards the nonowning spouse a portion of each future payment received by the owning spouse.

A less traditional but also permissible option is the separate interest approach. With the separate interest approach, the nonowning spouse is awarded a separate and distinct set of benefits under the plan, with a value equal to a stated percentage of the actuarial value of the owning spouse’s benefits. (Actuarial value is the total future benefits expected, times the chance of death before receiving them.) The owning spouse’s benefits are then reduced proportionately.

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Patterson v. Chrysler Group, LLC, 845 F.3d 756 (6th Cir. 2017)

Facts: A divorce decree awarded the wife an interest in the husband’s retirement and survivor benefits, expressly ordering him not to elect a survivor beneficiary other than the wife. The wife did not obtain a QDRO.

Upon retirement, the husband elected to receive retirement benefits without survivor benefits, thereby violating this provision. The wife sought to enforce the decree by sending a copy to the plan. The plan refused to comply with the decree, finding that the decree did not meet the requirements for a QDRO.

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Walsh v. Dively, 551 B.R. 570 (W.D. Pa. 2016)

Facts: When husband and wife were divorced in Pennsylvania, they agreed that the wife would receive 50% of the husband’s retirement. The agreement was incorporated into the divorce decree, but no DRO was entered.

The wife then filed for Chapter 7 bankruptcy. The bankruptcy trustee moved in bankruptcy court for authority to ask the state court to issue a DRO. The bankruptcy court denied the motion. The trustee then appealed.

Issue: Should the trustee be permitted to seek a DRO?

Answer to Issue: No

Summary of Rationale: The trustee has a duty to collect property of the estate in bankruptcy.  But retirement plans with an antialienation provision are not part of an estate in bankruptcy. Patterson v. Shumate, 504 U.S. 753 (1992). The retirement plan at issue was governed by ERISA, and it was subject to the statutory antialienation provision in ERISA unless a QDRO was entered. Because a DRO had not even been entered, let alone qualified by the plan, there was no QDRO, and the antialienation provision remained operative. Thus, the pension was not part of the wife’s estate in bankruptcy.

Note: As we shall shortly see, it is quite important that the state court awarded the wife an actual interest in a retirement plan, and not an award of cash she could spend freely for any purpose.

 

In re Kizer, 539 R. 316 (Bankr. E.D. Mich. 2015)

Facts: In a consent judgment of divorce, a court awarded the husband 50% of three retirement accounts owned by the wife. The wife was also awarded the marital home, but required to pay the husband for his interest. Because she lacked the funds to make the payments, she agreed to pay for the home by giving up her interest in the requirement accounts, increasing the husband’s interest to 100%.

QDROs were subsequently entered and approved, directing the administrators of the accounts to transfer to the husband 100% of the balance of certain accounts. The plan administrators complied with the QDROs by giving the husband accounts containing the funds at issue. A finding of fact was made that the husband could make withdrawals from these accounts at any time, without any form of early withdrawal penalty. (The husband claimed that his withdrawals were subject to a penalty, but he failed to produce supporting evidence, even after the court gave the husband additional time.)

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State Farm Life & Assurance Co. v. Goecks, F. Supp. 3d       , 2016 WL 1715205 (W.D. Wis. 2016)

Facts: A Wisconsin divorce decree provided:

The respondent [Gary] shall be required to maintain the petitioner [Sharon] as the primary, irrevocable beneficiary on one third of the face value of all his life insurance policies in effect as of the date of the final hearing or in the amount of Seventy Five Thousand Dollars ($75,000) of the face value of said policies, whichever sum is greater. Respondent shall provide the petitioner proof of said insurance and beneficiary designations. Petitioner shall pay the respondent the sum of Twenty Five Dollars ($25.00) per month toward the cost of said insurance. The parties further agree to designate the children as primary beneficiaries of all life insurance policies except as set forth above.  2016 WL 1715205, at *1. The divorce decree was not submitted to the employer for qualification as a QDRO.

The husband initially complied with the above provision, but later changed the beneficiary on some of his life insurance to his new wife. Upon his death, the insurers paid some of the benefits to the new wife, and interpleaded the remainder. Both wives asserted competing claims to the proceeds.

Of the various insurance policies at issue, one was an employer-provided policy regulated by ERISA.

Issue: Who is entitled to the proceeds from the employer-provided policy?

Answer to Issue: The husband’s wife at the time of his death.

Summary of Rationale: The court first held that the husband had breached the contract, rejecting a rather weak state law argument that the agreement only required the husband to name his former wife and children as a beneficiary of the insurance, and not as the exclusive beneficiary.

The employer-provided life insurance policy was part of a benefit plan, and it was therefore subject to ERISA. Benefits regulated by ERISA can be transferred only under terms of a QDRO. No QDRO was ever submitted. Thus, federal law preempted state law and barred enforcement of the decree with regard to the ERISA- regulated policy.

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