A Divorce Court Can Make You Execute Documents

We don't ordinarily think of courts becoming involved in the minutiae of effectuating their rulings. But sometimes they must. In Suarez v. Castillo, a trial court did not abuse its discretion when it ordered an ex-wife to execute a document transferring and releasing retirement benefits.

The retirement benefits were earned by the ex-husband. He was retired from working for the State of Texas. When he retired, he selected an annuity option from the Employee Retirement System of Texas (ERS). The ex-wife was the primary beneficiary of the ex-husband's ERS retirement. The ex-husband's estate was the secondary beneficiary.

The spouses divorced a few years after the ex-husband retired. The trial court awarded the ex-husband the ERS retirement benefits. The ex-husband wrote ERS to request that his sister be made the beneficiary of his ERS account. But the ex-husband died before completing the necessary paperwork.

The ex-husband's sister became the executrix of her brother's estate. In that role, the sister demanded that the ex-wife execute a transfer and release form so that the ex-husband's ERS benefits would be paid to his estate. When the ex-wife refused, the sister sued the ex-wife to require her signature.

The ex-wife argued that the trial court could not order her to sign the transfer and release form because that would result in altering the ERS statutory scheme. But unlike the Teacher Retirement System, ERS does not prohibit a change in beneficiary after a member's death. Further, under the divorce decree, the ex-wife had been divested of any interest in the annuity. Accordingly, the Eastland Court of Appeals held that the trial court had not abused its discretion by ordering the ex-wife to sign the transfer and release form, on pain of contempt of court should she refuse.

Military Retirement Pay Does Not Include Disability Pay

This blog entry might be subtitled, "Ah, but what a difference a few words makes!"

Here's the background: When a service member retires, he or she is entitled to receive military retirement pay, either voluntary retirement benefits or disability retirement benefits.  If the service member becomes divorced, his or her spouse might well be awarded a part of the military spouse's retirement pay (if, as and when received) as part of the division of the community estate.

If a service member is disabled, or becomes disabled, he or she may elect to receive Veteran's Administration disability benefits instead of military disability retirement benefits.  Veteran's Administration disability benefits are considered personal to the service member and cannot be divided upon divorce because they are not part of the community estate.

What sometimes happens is that a retired, disabled service member will opt to waive all or part of his military retirement pay for Veteran's Administration disability benefits.  To the extent that the former service member receives Veteran's Administration disability benefits in lieu of military retirement pay, his or her military retirement pay is reduced.  As a result, the amount of military retirement pay the former spouse then receives decreases because there is less of it to split.

Nearly twenty years ago, in Berry v. Berry, 786 S.W.2d 672 (Tex. 1990) (per curiam), the Texas Supreme Court ruled on a case in which this situation occurred.  In that case, the former spouse was to receive a percentage of her ex-husband's "gross Air Force disability retirement pay" which was to be "computed on the gross amount thereof before any deductions."  The retiree elected to receive Veteran's Administration disability benefits; his military retirement pay was reduced accordingly. The Court upheld the former wife's attempt to require the former husband to continue paying her a portion of the former husband's retirement pay based on the amount of his retirement pay before the reduction caused by accepting Veteran's Administration disability benefits because that reduction amounted to a "deduction" from the retirement pay.  Thus, because of the way the divorce decree had been drafted, the former wife continued to receive her full share of the former husband's military retirement pay.

On May 1, 2009, the Texas Supreme Court ruled on another case of this nature, Hagen v. Hagen, in which the divorce decree granted the non-military spouse a portion of "all Army Retirement Pay or Military Retirement Pay" that the service member might receive.  The decree did not mention Veteran's Administration disability benefits or contemplate that the former husband's military retirement pay would be reduced if the husband became disabled and opted to receive Veteran's Administration disability benefits in lieu of military retirement pay.  Accordingly, the Court upheld the reduction in payments to the ex-wife caused by the ex-husband's decision to accept Veteran's Administration disability benefits.

Had the decree in Hagen read like the one in Berry, the result in Hagen would have been the same as in Berry.  But those crucial few words were missing, so the result was different. 

There Must Be a QDRO to Divide Retirement

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.

Precision Required to Divide Retirement

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.