There Must Be a QDRO to Divide Retirement

Posted on September 7, 2007 by Jimmy Verner

A federal statute called the Employee Retirement Income Security Act (ERISA) governs most retirement plans.  To divide a retirement plan upon divorce, a court must sign a domestic relations order.  Once the Plan Administrator of the retirement plan approves the domestic relations order, it becomes a Qualified Domestic Relations Order (QDRO).  In the absence of a QDRO, a court cannot divide retirement benefits, even if the divorce decree provides otherwise.

Kennedy v. Plan Administrator is a case in point.  Mr. Kennedy was a DuPont employee who participated in DuPont's retirement plan.   After Mr. Kennedy married, he designated his wife as the beneficiary of his retirement plan in the event that he died before she did.  Later, the couple divorced.  In the divorce decree, Ms. Kennedy agreed that she would 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 [Mr. Kennedy's] employment."  On its face, this language divested Ms. Kennedy of any interest in Mr. Kennedy's DuPont retirement plan.

But no QDRO was signed.  Mr. Kennedy retired from DuPont.  Later, he died.   The retirement plan paid the balance of Mr. Kennedy's retirement - approximately $400,000 - to the former Ms. Kennedy because, it said, the waiver in the divorce decree did not comply with ERISA. 

Mr. Kennedy's estate sued Mr. Kennedy's ex-wife to recover this $400,000.  The trial court ruled for the estate, but the estate lost on appeal to the United States Court of Appeals for the Fifth Circuit.   Quoting a United States Supreme Court case, the court held that Congress had enacted strict and detailed rules governing how beneficiaries of pensions can be changed.  Mr. Kennedy had failed to follow those rules, so his ex-wife received his retirement after he died.

Tags: , ,

Precision Required to Divide Retirement

Posted on August 23, 2007 by Jimmy Verner

Dividing retirement benefits is an area of the law that requires using precise language and following rules exactly.  The Texas Supreme Court again made this clear in Holmes v. Kent, 221 S.W.3d 622 (Tex. 2007) (per curiam).

Holmes follows an all-too-familiar pattern.  The former wife, Ms. McWhorter, was a schoolteacher.  Her retirement benefits were through the Teacher Retirement System of Texas ("TRS").  When Ms. McWhorter retired, she designated her husband, Mr. Holmes, to receive an annuity should she predecease him.

Ms. McWhorter and Mr. Holmes later divorced.  Prior to the divorce, Ms. McWhorter signed a document retracting the designation of Mr. Holmes to receive the annuity and appointing her son and his wife (the Kents) to receive the annuity instead.  The divorce decree contained the usual language awarding Ms. McWhorter all her retirement benefits and divesting Mr. Holmes of any right to them.  Ms. McWhorter also changed her will to pass her entire estate to her son.

When TRS received these documents, it notified Ms. McWhorter that the designation was ineffective because only one person, not two, could be awarded an annuity.  Further, it told Ms. McWhorter that the language in the divorce decree did not meet TRS requirements and suggested language that would meet those requirements.  However, Ms. McWhorter supplied no further documentation, and a year later, she died.

The ensuing litigation pitted the Kents against Mr. Holmes, who claimed that the annuity belonged to him because Ms. McWhorter never had changed her designation with TRS.  The Texas Supreme Court agreed, noting TRS' specific requirements for  changing an annuity designation and Ms. McWhorter's failure to follow those requirements.

Tags: , ,