Think Your Employee's Divorce is a Sham to Get at Retirement Benefits? Don't Out-Think Yourself

On Monday, the Fifth Circuit issued its opinion in Brown v. Continental Airlines, Inc., 2011 WL 2780505 (5th Cir.), a rather unusual case addressing what a plan administrator’s obligations are with respect to a Qualified Domestic Relations Order (QDRO) when the plan administrator thinks the underlying divorce that produced the order was a sham.

Plan administrators should take note:

“When it Comes to QDROs, Don’t Out-Think Yourself, Even if You Believe The Employee Faked a Divorce”

In Brown, Continental alleged that the wives of nine pilots received lump sum distributions of the pilots’ retirement benefits from Continental's defined benefit plan by entering into fraudulent divorces where the couples continued to live together and then remarried once the plan paid out benefits. The wives were able to obtain these lump sum distributions because the plan provided that an ex-spouse to whom benefits are assigned can elect to receive the same in lump sum form, provided that the participant was at least 50 years old (even if the participant was still working, which was the case for all of the pilots at issue).

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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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