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Who is entitled to benefits?

Culwick v. Wood, 384 F. Supp. 3d 328 (E.D.N.Y. 2019)

(a) Facts: Husband and wife were divorced. Their divorce decree incorporated a separation agreement. The agreement provided:

[T]he Husband shall otherwise retain all pensions and annuities acquired by him at any time, including during the term of the marriage. . . . The Wife waives any claims she might have in and to these benefits including the right to be named as a survivor beneficiary.

384 F. Supp. 3d at 335. The agreement further provided that “nothing herein contained shall require either party to renounce or disclaim any gift, devise or bequest which he or she may be given by the other’s Will, Trust, or other document.” Id.

The husband died. At the time of his death, the wife was still named as the survivor beneficiary of his retirement plan under a predivorce designation. The husband’s estate assigned its claim to the husband’s father. The plan paid the survivor benefits to the wife, and the father sued the wife to recover the amount paid.

(b) Issue: Who is entitled to the husband’s survivor benefits?

(c) Answer to Issue: His father.

(d) Summary of Rationale: The retirement plan was regulated by ERISA, and the divorce decree was not a QDRO. Thus, the plan was required to pay the wife. Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285 (2009). But in its infamous footnote 10, Kennedy refused to reach the question of whether competing claims to ERISA-regulated benefits could be raised between competing claimants after the plan paid out the benefits. The court held that such claims do not violate federal law. Thus, the lack of a QDRO did not bar the father’s claim.
The court expressly rejected Staelens ex rel. Estate of Staelens v. Staelens, 677 F. Supp. 2d 499 (D. Mass. 2010), which it construed to hold that federal law does not permit claims between beneficiaries after payment by the plan.

The wife had expressly waived her right to collect survivor benefits. Therefore, she breached the agreement by collecting the survivor benefits. The survivor benefits were not a gift, because a completed gift requires that the donor give up control over the property at issue at the time of the gift. The husband never gave up control over the survivor benefits during his lifetime. The benefits were therefore not a gift to the wife.

Observations:

1. As noted in previous versions of this outline, the court’s resolution of the issue reserved in footnote 10 of Kennedy is the majority rule. Most federal courts permit claims to ERISA-regulated benefits between private parties after payment by the plan. See, e.g., Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131 (3d Cir. 2012); Andochick v. Byrd, 709 F.3d 296 (4th Cir. 2013).

2. The court’s reading of Staelens is questionable. Staelens suggested that federal law perhaps should not permit competing claims. But it recognized that there was contrary First Circuit law. Moreover, as noted in the 2010 version of this outline, the actual holding of the case was that the waiver of benefits at issue was not sufficiently specific to be enforceable. The court’s entire discussion of the competing claims issue was not the basis for the decision and was therefore dicta.

3. The court’s holding that any gift was incomplete leads logically to the position that it is impossible ever to make a gift of survivor benefits, which seems doubtful. A more convincing rationale would be that the beneficiary designation predated the agreement and the divorce, so it was among the rights expressly waived by the wife. In other words, the provision permitting gifts applied only to gifts made after the agreement was signed.

To see the difference, consider what would have happened if the husband had made a new beneficiary designation after the divorce. Under the court’s reasoning, the father would still have received the survivor benefits because the husband did not give up control over the benefits. In other words, despite language in the agreement expressly permitting gifts, even a postdivorce gift of survivor benefits would be unenforceable. By contrast, the rationale suggested above would make a predivorce beneficiary designation unenforceable while still permitting enforcement if the husband voluntarily redesignated the wife after the divorce.