Competing claims for retirement benefits
Too many pieces of the financial pie
In a recent 2008 decision from the Fifth Circuit Court of Appeals (which handles federal appeals out of Mississippi as well as Texas and Louisiana), the need for a properly drafted QDRO in a divorce was stressed. This case illustrates the problem of not complying with ERISA in drafting a QDRO. Seemingly, one attorney thought a court order was sufficient, while the Fifth Circuit reminded the attorney that ignoring the dictates of ERISA is at your own peril.
Taliaferro v. Goodyear Tire & Rubber Co.involved a man married and divorced twice. The husband, who worked for Goodyear Tire & Rubber, divorced his first wife. The divorce decree required the husband to pay child support but he fell behind. In 2001, his first ex-wife took him to court to collect the child support arrearages. The state district court granted the ex-wife a right to collect the child support from his retirement account at Goodyear. The attorney sent a notice to Goodyear claiming an interest in the retirement account. In response, Goodyear told the attorney he needed to provide a Qualified Domestic Relations Order (QDRO) and supplied the attorney with the guidelines. (NOTE: QDROs can be used to collect child support.) However, the attorney never provided Goodyear with a QDRO. Rather, Goodyear received two additional state court orders directing it to withhold child support payments from the husband’s retirement account. Each time, Goodyear told the parties a properly drafted QDRO was required and each time this request was ignored.
In 2004, the husband divorced his second wife. The second wife, who obviously had an attorney who understood the implications of ERISA, provided Goodyear with a QDRO giving her a 70% interest in the husband’s retirement account. Goodyear now faced competing claims over the same retirement account. Eventually, the case ended up in Federal District Court given Goodyear claimed its pension plan was governed by ERISA—a federal law.
The Federal District Court ruled that the pension benefits were subject to the original state child support lien, now in the amount of $292,000.00. However, the second wife and Goodyear appealed arguing that given the pension plan was controlled by ERISA, the first wife failed to provide a properly drafted QDRO entitling her to the retirement benefits.
The Fifth Circuit reversed the district court decision. If the pension plan was governed by ERISA, which Goodyear claimed, the state court orders issued on behalf of the first wife for back child support were unenforceable against the pension plan.
“Under federal law, which takes precedent in this area, Ms. Parsons [first wife] may not reach benefits in an ERISA-covered plan unless she complies with ERISA’s requirements. An ERISA fiduciary may distribute pension benefits to a third-party claimant only when presented with a qualified domestic relations order.”If the party does not present a valid QDRO, then the plan administrator “cannot be compelled to pay domestic support obligations [child support, alimony, or divorce property settlement] out of pension benefits.
Lesson learned—If the pension plan is an ERISA controlled plan (which covers the majority of private employer pension plans), you must present the plan with a QDRO approved by the plan administrator before they are obligated to pay. That is why it is so important to consult an attorney who is knowledgeable about QDROs to ensure your rights are protected in a divorce.
In my next post, I will discuss another case in which the parties’ wishes were not followed, as the parties did not comply with ERISA.
