Employers know that benefits under a retirement plan can be split between a participant and a former spouse in the event of a divorce under the terms of a qualified domestic relations order (QDRO). A domestic relations order is qualified if it meets certain technical requirements. A recent decision from the Minnesota Supreme Court highlights the adverse consequences that can befall a former spouse who delays obtaining a QDRO.

The Minnesota case involved Gary, a participant in a multiemployer plan, who was married in 1964 and divorced in 1993. The divorce decree provided that Patricia, his former spouse, would be awarded a one-half interest in the marital share of all Gary’s future pension payments and that Patricia would be named as the survivor beneficiary if Gary elected a pension with a survivor benefit. In order to enforce that award, Patricia needed to prepare a QDRO that would be served on the multiemployer plan that would require the plan to split Gary’s pension benefit appropriately between Gary and Patricia.

Several years after the divorce and before Patricia prepared a domestic relations order, Gary remarried. He then retired in July of 2004 and made a pension benefit election, choosing a joint and 50% survivor annuity in favor of Shelly, his new wife.

Patricia finally obtained a domestic relations order and served it on the multiemployer plan in 2005. The order assigned a 50% interest in Gary’s retirement annuity to Patricia, including a portion of any survivor benefits. The order was then served on the plan which concluded that the order was not a QDRO because it assigned to Patricia a portion of an annuity benefit already vested in someone else, namely, Shelly, the current spouse. Gary then died in October of 2005. Patricia tried to enforce the order and the Minnesota district court ordered the plan to begin paying survivor benefits to Patricia and also awarded her over $55,000 in attorneys’ fees and costs.

The Minnesota Supreme Court reversed. The court concluded that Shelly’s right to the survivor benefit vested when Gary retired and elected a survivor benefit in her favor. Because Patricia did not provide the domestic relations order to the plan until after Gary had elected his form of retirement benefit, it was too late for Patricia to claim her share of Gary’s pension, at least from the portion otherwise payable to Shelly (which after Gary’s death, was the only benefit being paid).

The supreme court acknowledged that the decision led to a harsh result for Patricia but concluded that former spouses could protect themselves by acting with diligence to preserve their rights. In this case, 12 years passed between the divorce decree and the former spouse’s attempt to enforce her rights. The court concluded that a domestic relations order served after a pension benefit has commenced can be a qualified domestic relations order. However, such an order cannot operate to transfer a benefit from one survivor beneficiary to a different survivor beneficiary. It can only operate to direct all or a portion of the benefit being paid to the participant from the participant to the former spouse. In this case, because the participant had died, the former spouse was not entitled to benefits under the QDRO and was not entitled to attorneys’ fees.

The lesson for former spouses:  Prepare and file your domestic relations orders promptly after your divorce with the retirement plans from which you expect benefits. If you wait, you might not ever collect the benefits otherwise awarded to you under the divorce decree.

Topics:  Divorce, Employee Benefits, Multiemployer Plan, Pensions, QDRO, Retirement Plan

Published In: Family Law Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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