Sponsors of qualified retirement plans know that, generally speaking, plan benefits cannot be taken from a participant through legal process or otherwise be assigned to anyone other than the participant. There is an exception for payments in connection with a divorce under a qualified domestic relations order or QDRO. Qualified retirement plans must honor QDROs that meet statutory requirements. The QDRO must be an order relating to the “child support, alimony payments, or marital property rights” of a “spouse, former spouse, child or other dependent of a participant,” issued pursuant to a state domestic relations law.

A recent decision of the Supreme Court of Alaska concluded that a participant’s pension benefit under a multiemployer pension plan was subject to division between the participant and the woman with whom he had cohabitated for sixteen years and with whom he had raised children. The two had never married. The court cited a Ninth Circuit decision relating to Washington law but concluded that Alaska law also provided “marital property rights” to cohabitants and provided for property distributions when a cohabitant relationship dissolved. The court then concluded that the woman qualified as an alternate payee because she was a “dependent” of the participant. The court relied upon the definition of “dependent” in the tax code and noted that the participant and the woman had shared a residence and that the participant had claimed the woman as a dependent on his taxes at least some of the years they resided together.

The definition of “dependent” in the Internal Revenue Code is much more complicated than the single section cited by the court requiring that an individual share a principal place of abode with a taxpayer and be a member of the taxpayer’s household to constitute the taxpayer’s dependent. In addition to meeting those requirements, the individual must also be supported by the taxpayer and cannot, in most cases, have income in excess of the dependency exemption. Those elements of the dependency definition were not mentioned at all in the court decision. On the facts given in the opinion, it is unclear whether the woman met the “dependent” definition under federal tax law with respect to the participant.

The decision addressed property to be divided under Alaska law when the cohabitants ceased living together. To that extent, the court is entitled to interpret Alaska law without regard to the technicalities of federal tax law. However, the court’s interpretation of Alaska law might not be an interpretation accepted by the pension plan, which would need to approve a QDRO before it was implemented. Perhaps recognizing that the pension plan may view the situation differently, the court included the following as a final footnote to its decision:

If there is concern that the pension administrator will refuse to honor the domestic relations order even in light of [the Ninth Circuit decision] discussed [above], the court may require an equalization payment from [the participant] to [the woman] reflecting the present value of her share of the union pension.

In other words, although the Alaska courts may take the value of the union pension into account in splitting the property, the court was not confident that the pension plan would allow the pension to be split with an alternate payee who had never been married to the participant. Absent better proof of tax dependency status, the pension plan may well be reluctant to approve a QDRO for former cohabitants.

 

 

Topics:  Cohabitation Agreements, Dependents, Divorce, IRS, Marital Assets, Multiemployer Plan, QDRO, Qualified Retirement Plans

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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