Post-Death Divorce in addition to Post-Death QDRO

[401 Chaos]

Wow! Would appreciate any thoughts on proper analysis under these remarkable facts:

1. Participant and second wife take steps toward divorce

2. Wife dies shortly after divorce action starts and before divorce is final

3. The Participant, a month after second wife's death, files new 401(k) beneficiary designation indicating he is single and names his son as the 401(k) beneficiary.

4. 5 months later, participant dies without any final action on the prior divorce proceedings

5. 2 months after participant's death, plan distributes 401(k) account to son named as beneficiary

6. 4 months after participant's death and 10 months or so after deceased second wife's death, the court enters an Equitable Distribution Judgment dividing participant's rights in the 401(k) 50/50 with deceased second wife. (Equitable Distribution was in response to continued efforts to prosecute the divorce by the estates of both the wife and the participant).

7. Plan is being pressured to provide deceased wife's estate 50% of the participant's 401(k) account.

8. Plan requests QDRO in addition to provisions in equitable distribution judgment.

So, we have not only a possible post-death QDRO but a post-death divorce. Plan presumably had no reason to know of pending divorce at time of participant's death since there was no divorce or draft QDRO, etc. at that point. Plan knows participant was a widower and has what it assumes to be a fully valid and recent beneficiary designation naming son as beneficiary of 401(k) and so pays that out in ordinary course. Does deceased wife's estate have any interest in the 401(k) plan by time divorce and QDRO are provided? Can Plan even accept QDRO under these facts?

[J Simmons]

I would recommend the plan administrator consider filing for habeas corpus relief in federal court for protection from what appears to be an improper effort by a state court (acting more as a probate court than a divorce court regardless of how it began) to override federal law and the provisions of the plan.

You might want to look at the US Supreme Court's 1/26/2009 ruling in Kennedy v Plan Administrator of the DuPont Savings Plan, that gives the plan administrator cover from state law machinations if the plan administrator follows the terms of its plan.

[jpod]

401 Chaos: How did attorney for estate of deceased 2nd spouse react when you said "sorry, there is no account anymore" (or something to that effect)? Is someone making an allegation that the plan should not have paid out the benefit to the rightful death beneficiary? If so, what is the legal theory for such allegation? Why did the plan request a qdro? What did it think it would do with it if it received one?

Frankly, based on the facts you've conveyed I don't think you have a whole lot to worry about, other than the risk of having to pay a lawyer to get a lawsuit against the plan dismissed if it comes to that.

[401 Chaos]

Thanks for these thoughts. The facts continue to evolve a bit.

Jpod, I don't believe the plan has yet informed the spouse's estate that the 401(k) money is not there. Spouse's estate, however, is aware that participant had 401(k) account and has asked for information regarding the account pointing to the Equitable Distribution provisions. Plan's initial response was to say that the Equitable Distribution provisions were not enough to act on and that the plan would need a QDRO to consider any transfer to spouse. The QDRO has not been obtained yet but I think one thing the Plan hoped was that having this addressed in a separate QDRO might raise the issue on whether the court really had authority for trying to assign the plan assets after both deaths--sort of along the lines J Simmons thoughts about the court having exceeded its authority.

Also, it appears that the participant had a pension plan in addition to the 401(k) Plan. The Pension Plan provides that in the event a participant dies without a spouse, the benefits go to the participant's estate. On that basis, I'm thinking any attempt to get at those amounts via a QDRO / equitable distribution would arguably be too late as well since there was no real basis for dividing the benets at the time of the participant's death. (Although I suppose if the court has sufficient authority to divide the participant's estate through a post-death divorce, the deceased spouse's estate may get some of the plan benefits after they pass from the plan to the estate. That seems like a non-plan issue at that point though?)

[J Simmons]

Certainly not a divorce lawyer, but I suppose that in many states the death of a spouse in the midst of a divorce proceeding and before the marriage has been ended by a decree of divorce would moot the remaining divorce proceeding.

[david rigby]

From a non-lawyer: advice from J Simmons sounds very good.

Perhaps the plan should consider rejecting the QDRO (assuming one is ever delivered), stating that the benefit has been paid per the terms of the plan. (Of course, this assumes the plan administrator did not have knowledge of a possible QDRO.)

[401 Chaos]

J Simmons, Thanks, I'm no divorce lawyer either and so had (have) the same thought. What the lawyer tells me is that death really does moot the divorce action but not necessarily the action for equitable distribution. Apparently it used to be that you had to have a divorce decree entered before you could get equitable distribution so if you had death before divorce decree was entered, there was no equitable distribution. Our legislature (North Carolina) apparently changed that law a few years ago so that equitable distribution and divorce operate on somewhat separate tracks. You can apparently get equitable distribution before you get actual divorce and that carries over to equitable distribution after death of a spouse so long as some equitable distribution proceeding was started prior to death.

So, there apparently was no post-death divorce here, just post-death equitable distribution which sought to divide all 401(k) and pension amounts. Not sure that is really relevant from a plan / ERISA perspective though as the second wife clearly died prior to any final equitable distribution being entered?

[J Simmons]

Chaos,

It would sound like then the post-death QDRO was entered per a state domestic relations law, and given the 3/2007 regulations, post-death entered QDROs may be valid.

If the plan paid out per its terms and death beneficiary designation before it had hint of possible QDRO coming, then I think the plan is on terra firma and the now imminent QDRO is too late.

However, as David Rigby points out, if plan administrator had reason to know that the QDRO was in coming at the time it paid out as if there was no QDRO, there could be problems for the plan administrator.

[mbozek]

Chaos,

It would sound like then the post-death QDRO was entered per a state domestic relations law, and given the 3/2007 regulations, post-death entered QDROs may be valid.

If the plan paid out per its terms and death beneficiary designation before it had hint of possible QDRO coming, then I think the plan is on terra firma and the now imminent QDRO is too late.

However, as David Rigby points out, if plan administrator had reason to know that the QDRO was in coming at the time it paid out as if there was no QDRO, there could be problems for the plan administrator.

I think the APs (wife #2) estate is SOL in collecting 401k benefits from the plan for the following reasons.

1. At the time of his death the participant had properly executed a beneficiary designation. If the rules of the plan permitted such a designation, then the plan paid the correct beneficary. See Kennedy v. Dupont - plan has final say to determine who is beneficiary under term of the plan. Under ERISA state laws do not preempt plan rules.

2. From the facts presented, at time of P's death and when beneficary was paid plan had no notice that QDRO was pending.

3. AP's estate is entitled to 50% of whatever assets are in P's account at the time a QDRO is issued by the plan. 50% of 0 =0.

4. AP's estate has a right under state law to pursue the son to collect benefits that are owed to AP's estate under the equitable distribution ( see kennedy)