Divorced Employee Quitting & Cashing Out.

[Guest Sara H]

One of my clients called me with this question. He has an employee who has been divorced for 10+ years. The trustee has never seen DRO papers and isn't aware that there are any. The employee has decided to quit, cash out and wants to leave the state. The employer thinks that the employee's ex-spouse is going to try to get more money from the employee & so he wants to leave the state before she can. If the trustee has never seen a DRO, does he have any legal reason not to let the employee cash out his account balance?

[mbozek]

If this an ERISA plan then the employer has no other option but to pay the benefits to the employee because there is no valid claim by the Spouse. The purpose of a QDRO is to protect the PA from suit by the ee if the benefits are paid pursuant to a valid QDRO. If the plan does not have a valid QDRO from the spouse then it is too bad too sad for her/ him. The spouse may not have filed a QDRO because it would cost extra money for an atty to draft it or because the pension benefits were not included in the divorce decree.

If this a non ERISA plan then state law would apply but I don't see how the plan admin could be liable if notice of spousal rights is not served before distribution of the funds. Check w/ your atty.

[RCK]

I'm thinking of changing my ID to "What does the plan document say?"

Ours say that we can delay payment to a participant if and only if we have in hand a draft QDRO signed by a court. This language has come in handy in several situations in explanatins to attorneys of angry alternate payees.

RCK

[Kirk Maldonado]

RCK:

I think that the message boards should automatically make the first reply be "What does the plan document say?" That would be an appropriate response at least 90% of the time.

[mbozek]

While normally I would agree that the plan document should be consulted first, under the facts given there should be nothing in the plan document to prevent payment since a dro has not been served and the trustee has no knowledge that a dro is to be served A trustee cannot start the QDRO review procedure until the document is received. Any impounding of the payment of a benefit without a creditable basis in fact would expose the plan/ trustee to personal liability for violation of the distribution/ alienation rules as well as attorney fees/ sanctions. A few years ago a very well known 403(B) annuity provider refused to pay a participant's death benefit to his spouse because of its belief that the spouse had abandoned the employee. The spouse was forced to go to court to receive the benefits ( no objection or other claim for benefits was ever filed). The ct not only awarded the benefits to the spouse but levied sanctions on the annuity provider for filing a frivilous claim. All I am saying is that the trustee better have a tangible proof of the existance of a spousal claim before holding up payment. Maybe the spouse waived all rights to plan benerfits under the divorce.

[david rigby]

We have seen other comments on DRO issues that indicate

1. a divorce proceeding can be re-opened to add a QDRO, but

2. judges are reluctant to do so.

Is this correct?

[mbozek]

Pax I am not aware of your issues- I only see the dros that are filed with a plan. However, it is my understanding that further ct orders after divorce is final can be issued only if the ct retains jurisdiction over the case. Also there may be statute of limitation issues under st. law which would preclude such a petition. What if the parties voluntarily consented to a property division which was incorporated into the divorce decree? Finally only benefits which accrued as of the date the divorce commenced are subject to division under marital property laws.

What I have seen are spouses trying to claim benefits 10 yrs after the divorce was issued by requesting that benefits be paid pursuant to a divorce decree without a dro (because they cant pay an attorney) or an atty for the spouse comes back 10 yrs after the divorce was final to request payment because a dro was never issued by the ct and the atty does not want to go back to the ct.

[Guest toshie_5@hotmail.com]

What I have seen are spouses trying to claim benefits 10 yrs after the divorce was issued by requesting that benefits be paid pursuant to a divorce decree without a dro (because they cant pay an attorney) or an atty for the spouse comes back 10 yrs after the divorce was final to request payment because a dro was never issued by the ct and the atty does not want to go back to the ct.

This is my exact situation! What happens? How can the employee protect his/her interest?

[Mike Preston]

There are no cut and dried answers. Essentially, the marital settlement agreement is the document that controls things, as much as they CAN be controlled. Hence, if this is a concern, the employee should ensure that the marital settlement agreement specifies what the ex- is entitled to. If that is "absolutely nothing", then the marital settlement agreement should state that. This is no different from any other asset that the employee has at the time of divorce.

When finalizing a marital settlement agreement, I can't imagine a divorce attorney being imprecise when specifying who gets the Rolls Royce (if one exists), but yet, an asset which is sometimes even bigger in value is left to twist in the wind.

Unfortunately, even if the MSA is clear on the issue, an employee is not completely protected. The fact is that an ex-spouse can, if they want to pay an attorney to do so, march back into court and ask for a share of a pension that was, under the original MSA, not contemplated. There are a number of cases in California that allow this. They typically deal with plans that provide some sort of retroactive benefit increase, not known at the time of divorce, but which are actually benefits based upon service that overlaps the marital period. In this case, it is perfectly reasonable for an ex-spouse to claim a portion of that benefit as it came about because of service during the marital period.

Unfortunately, the court system being what it is, this allows attorneys of non-participant spouses to claim all sorts of theories as to why they should be allowed to march in to court and ask for similar treatment. Most of the time, the courts see through the cloud of smoke and reject the request. But as the employee/participant, your only rational choice is to hire an attorney to defend against this sort of thing, just like you would hire an attorney to defend you if you were sued by anybody for any reason. The suit might be totally frivolous (in your eyes) but the litigation system in this country demands that you defend yourself if you are caught up in something like that.

Getting back to your situation, if your ex- has decided to hire an attorney to try and get a court to approve an order compelling your company's plan to give your ex- a share of your benefit, you have little choice but to hire an attorney and fight it.

The more documentation you can bring to the table that supports your position, the better off you will be.

Good luck.