Entry of QDRO based on "legal separation" or "limited divorce" or "divorce a mensa et thoro"?

[fmsinc]

A TSP transfer can be implemented with a RBCO even though the parties are not yet divorced.  A "legal separation" is sufficient - see 5 CFR Part 1653, Subpart A, Sections 1653.1(b) and 1653.5(i).  

The following laws and regulations make it clear that a FERS COAP can be entered based on "legal separation”:  5 USC Sections 8467(a), 8445(f), 8424(b)(1)(B), 5 CFR 838.101(a)(1), 828.103, 8382.201(a), 838.236(b), 838,401(a), and 838.701(a).

Pursuant to 26 USC 408(6):

(6)Transfer of account incident to divorce
The transfer of an individual’s interest in an individual retirement account or an individual retirement annuity to his spouse or former spouse under a divorce or separation instrument described in clause (i) of section 121(d)(3)(C) is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an individual retirement account of such spouse, and not of such individual. Thereafter such account or annuity for purposes of this subtitle is to be treated as maintained for the benefit of such spouse."

Section 121(d)(3)(C)(i) provides: 

"C) Divorce or separation instrument
For purposes of this paragraph, the term “divorce or separation instrument” means—
(i) a decree of divorce or separate maintenance or a written instrument incident to such a decree,"

Under ERISA the question seems to be addressed only at 26 USC 414(p)(1)(B):

"(B) Domestic relations order
The term “domestic relations order” means any judgment, decree, or order (including approval of a property settlement agreement) which —
(i)relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
(ii)is made pursuant to a State or Tribal domestic relations law (including a community property law)."

Since 1842 a grounds in Maryland for what we later called a "limited divorce" was a divorce a mensa et throro (from bed and board).  It was a document that would have met the definition above and would have have supported the entry of a QDRO prior to the final divorce. 

Maryland recently did away with a "limited divorce" and the State law provides that only in connection with an absolute divorce or an annulment can the court determine what is "marital property", the value of such marital property, and make an equitable adjustment by a monetary award that include the entry of a QDRO. 

I have been apoplectic since there are so many negative consequences of delaying the entry of a QDRO.  See attached.   

In South Carolina, they have what they call a "Decree of Separate Support and Maintenance" that will be entered by the Court adopting, ratifying and incorporating a "Complete Support and Property Settlement Agreement" executed by the parties.  It is a "legal separation" accordance with South Carolina case law.  The parties must still remain apart to some statutory period of time before they are eligible for a Final Decree of Divorce. 

So my question is:  Do you know of any other ERISA or IRS statutory authority that addresses the interplay between "legal separation" and the entry of a QDRO, or case law addressing the issue.

Thanks,  

David  

CONSEQUENCES OF DELAY 02-14-2025.pdf

[Peter Gulia]

Saying nothing about the US government employees’ retirement plans:

If other conditions are met, ERISA § 206(d)(3) does not preclude a domestic-relations order that provides alimony or marital property to the participant’s current spouse, even with no divorce or annulment, and no separation. But the order must have been “made pursuant to a State or Tribal domestic relations law (including a community property law).”

At least two States’ courts found that because neither of two spouses had asked the court for a divorce, annulment, separation, or other domestic-relations relief, there was no matter that could call for an order a plan might treat as a QDRO.

Wallace v. Wildensee, 990 N.W.2d 637, 2023 Empl. Benefits Cas. (BL) ¶ 154,219 (Iowa 2023) (When there is no divorce or separate-maintenance proceeding, a court lacks power to issue a domestic-relations order.);

Jago v. Jago, 2019 Pa. Super. 246, 217 A.3d 289, 297 (Pa. Super. 2019) (“[A] QDRO is a procedural right derivative of or adjunct to a domestic relations matter, but outside the context of a domestic relations matter, a QDRO is not a distinct, discrete legal claim[.]  [W]e hold that absent a divorce or other domestic relations matter pending between spouses, they cannot obtain a QDRO for the sole purpose of moving funds in the participant/spouse’s [retirement] plan out of the plan to the non-participating spouse[’s IRA].”).

A current spouse has a right to a survivor annuity or death benefit, to the extent the plan provides (or ERISA § 205 commands the plan to provide).

Does Maryland law empower a domestic-relations court to allocate property between current spouses?
 

[fmsinc]

Peter.  Before Maryland did away with a "limited divorce" that was classified as a "legal separation" it might have been possible to transfer ERISA plan benefits without a divorce based on 26 USC 408(6) and 121(d)(3)(C)(i).  But the enactment of the Marital Property Statute in 1979 made is clear that the only in connection with a suit for absolute divorce or annulment did the court have the authority to determine what property was marital, and the value of that marital property, and the amount and form of a monetary award (that included QDROs) that would be equitable. 

I am familiar with Jago which stood for the proposition that. ". . . . a QDRO is a procedural right derivative of or adjunct to a domestic relations matter, but outside the context of a domestic relations matter, a QDRO is not a distinct, discrete legal claim."  This was consistent with a Maryland case, Rohrbeck v. Rohrbeck, 318 Md. 28, 566 A.2d 767 (1989), that a QDRO is simply an aid to enforcing a prior Order of the trial court and does not rise to the level of a separate cause of action. Accord, see Wilson v. Wilson, 116 Ohio St. 3d 268 (2007), and  In re Marriage of Petraitis, 263 Ill. App. 3d 1022, 1040 (1993). 

By the way, here is a direct link to Wallace v. Wildensee, https://www.courtlistener.com/opinion/9397059/mary-kathryn-c-wallace-v-kristin-w-wildensee/?q=Wallace+v.+Wildensee%2C+990+N.W.2d+637

And the DOL publication, “ QDROs - The Division of Retirement Benefits Through Qualified Domestic Relations Orders” -

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/qdros.pdf provides: 

        “Q 1-8:  Must a domestic relations order be issued as part of a divorce proceeding to be a QDRO?

            “No. A domestic relations order that provides for child support or recognizes marital property rights may be a QDRO, without regard to the existence of a divorce proceeding. Such an order, however, must be issued pursuant to state domestic relations law and create or recognize the rights of an individual who is an "alternate payee" (spouse, former spouse, child, or other dependent of a participant).

            “An order issued in a probate proceeding begun after the death of the participant that purports to recognize an interest with respect to retirement benefits arising solely under state community property law, but that doesn't relate to the dissolution of a marriage or recognition of support obligations, is not a QDRO because the proceeding does not relate to a legal separation, marital dissolution, or family support obligation. [From the unique circumstances of DoL Advisory Opinion 90-46A.] 

             “[ERISA § 206(d)(3)(B); IRC § 414(p)(1); Advisory Opinion 90-46A (Appendix A); see  Egelhoff v.  Egelhoff, 121 S.Ct. 1322, 149L. Ed. 2d 264 (2001); see  Boggs v.  Boggs, 520 U.S.  833, 117 S.Ct.  1754 (1997)]”

     Advisory Opinion 90-46A provides in pertinent part: 

        “With respect to ERISA section 206(d)(3)(B)(ii)(II), it is the view of the Department of Labor that Congress intended the QDRO provisions to encompass state community property laws only insofar as such laws would ordinarily be recognized by courts in determining alimony, property settlement and similar orders issued in domestic relations proceedings. We find no indication Congress contemplated that the QDRO provisions would serve as a mechanism in which a non-participant spouse's interest derived only from state property law could be enforced against a pension plan.”

Unfortunately our Legislature in Maryland doesn't know a QDRO from a Quahog and routinely enacts legislation that creates more problems than it resolves, often in areas of law with respect to which Federal preemption applies to the Agreement of the parties or the consequences intended by the trial judge.  I don't know how many times I have told my colleagues that is the non-military spouse does not file a DD 2656-10 within 12 months of the divorce, she will not receive SPB benefits no matter what it says in the Marital Settlement Agreement or in the Judgment of Absolute Divorce or in the Military Retired Pay Division Order - make sure you malpractice insurance premium payments are up to date.   

I find it incongruous that Federal law with respect to TSP RBCOs, FERS COAPs and IRA RBOs are not concerned with whether or not the parties are still married, and are happy to transfer such benefits based based on a "legal separation".  

In all events, here are a few cases that reflect a corollary to the issue at hand. 

In US v. Abell, 435 F.Supp.3d 299 (D. Mass.,2020), affirmed 985 F.3d 111 (2021), the husband pleaded guilty to eight counts of wire fraud and money laundering and was sentenced to 97 months incarceration and three years supervised release. The Court also issued an Order of Forfeiture for criminal restitution in the amount of $3,879,750.00.  The Government sought a Writ of Garnishment against the husband's assets including his 401(k) plan with an approximate value of $393,500.00.
    The husband and his wife oppose garnishment of the 401(k) account on the grounds that the wife had a vested interest in the 401(k) account by virtue of her marriage to the husband, and that Massachusetts property law compels equitable distribution of marital assets and, therefore, the wife is entitled to an equitable portion of the funds in the 401(k) account.
    The court held:
        "The argument that Massachusetts property law precludes garnishment of defendant's 401(k) Account is unavailing. Persuasive case law indicates that the pre-divorce property interest of an individual in her spouse's ERISA-qualified retirement account is governed exclusively by federal law, not state property law. See, e.g., United States v. Novak, 476 F.3d 1041, 1061 (9th Cir. 2007) (en banc) ("Retirement plans covered by ERISA ... are governed exclusively by federal law."); United States v. Beulke, 892 F. Supp. 2d 1176, 1180 (D.S.D. 2012) ("Federal  law, not state community property law, determines whether a person has a 'property or a right to property' interest in an ERISA-qualified pension plan."). It is undisputed that the Abells are still married. In the absence of a divorce decree or other qualifying domestic relations order, state property law will not displace federal law with respect to a spouse's alleged claim to a 401(k) Account subject to a criminal restitution order. See Beulke, 892 F. Supp. 2d at 1180."  (Emphasis supplied.)

 In US v. Brazile, Case No. 4:18-cv-00056 SEP.,  United States District Court, E.D. Missouri, Eastern Division.(2020), -
-https://scholar.google.com/scholar_case?case=17860472826493880578&hl=en&lr=lang_en&as_sdt=6,33&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:12484640753426065479:AAGBfm1agvHLwT5aWZ_N6PDZrK7iWFqV8A&html=&eexpid=320022102
...involved a case where on July 30, 2013, Steven Brazile ("Steven") pleaded guilty to one count of transportation of securities obtained by fraud, in violation of 18 U.S.C. § 2314. As a part of his plea agreement with the Government, Steven acknowledged that he owed restitution in the amount of $3,902,880.85. The Government has a lien against Steven's property and rights to property under 18 U.S.C. § 3613(c) as a result of the judgment entered against him on November 13, 2013, in the Northern District of Illinois.

    Before the entry of Steven's sentence and judgment, Lorraine Brazile ("Lorraine"), Steven's then-wife, filed a suit for dissolution of marriage in the Circuit Court of St. Louis County, Missouri, on July 25, 2013. Id. On August 29, 2013, Defendants entered into a voluntary Property Settlement and Separation Agreement ("Agreement"), and the circuit court entered a final judgment of dissolution awarding Lorraine child support and a portion of Steven's pension benefits. On August 24, 2016, Defendants submitted a qualified domestic relations order ("QDRO") to the divorce court, which assigned Lorraine 100% of Steven's lump sum benefit amount and monthly annuity benefits.  The QDRO similarly awarded Lorraine 100% of the Braziles' marital home on Vienna Avenue (the "Vienna property").

    In September of 2017—four years after their marital dissolution and 13 months after they submitted their QDRO assigning the disputed assets to Lorraine—probation officers conducted a home visit and discovered that Steven and Lorraine were living together with their children and were raising their kids together as a "family." Id. ¶ 28. The Government contends that this demonstrates the Defendants entered into a "sham divorce" to transfer assets to Lorraine that could otherwise have been used to pay victim restitution. The Government alleges fraudulent transfer in violation of 28 U.S.C. § 3304(a)(2) (Count I); fraudulent transfer in violation of 28 U.S.C. § 3304(b)(1)(A) (Count II); and fraudulent transfer in violation of 28 U.S.C. § 3304(b)(1)(B) (Count III).

    The Government alleges that Steven has violated three provisions of the Federal Debt Collection Procedures Act ("FDCPA"). As a remedy, it asks the Court to void the final judgment and dissolution of property in Defendants' divorce case, enter judgment for the United States for the full value of the property transferred from Steven to Lorraine, and grant the United States a lien against all fraudulently transferred property such that it can seize that property immediately to pay Steven's restitution. By seeking dissolution of agreements to which he is a party, reversal of his transfer of assets to Lorraine, and seizure of the house he lives in as well as other assets that allegedly support him and his family—all in satisfaction of Steven's own debt.

    The court goes on to consider several evidentiary issues, expert witness qualifications, res judicata, collateral estoppel, waiver, equitable estoppel, and more.  The Court then held:

        “Count III alleges constructive fraud in violation of 28 U.S.C. § 3304(b)(1)(B). Doc. [1] at 11. To prove constructive fraud under that section, the Government must show that Steven transferred assets to Lorraine "without receiving a reasonably equivalent value in exchange for the transfer" at a time when he "intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due." 28 U.S.C. § 3304(b)(1)(B)(ii).
        
        "As noted already, the Government alleges the Braziles' divorce settlement gave Lorraine all of the couple's viable assets in order to insulate those assets from Steven's criminal restitution liabilities. The Government thus contends that all the elements of § 3304(b)(1)(B) have been met. Doc. [66] at 5-12."

        * * * * 

        "By contrast, the Government has produced substantial, undisputed evidence that Steven was aware of his impending restitution liabilities when he signed the divorce settlement. See, e.g., Doc. [85] ¶¶ 15, 17-18, 32. The restitution debt totaled roughly four times what Steven received in the divorce, even if the assets allocated to him are assigned their full value. See Doc. [87] at 31 (explaining that the "grand total" of Steven's share of the divorce settlement amounted to $800,490.0).[7]  Steven has neither contradicted this evidence nor produced other evidence that would support a finding in his favor, so the Government is entitled to summary judgment."

See also United States of American v. Wolas, 520 F.Supp.3d 114 (2021) - Criminal Action No. 17-10198-FDS,United States District Court, D. Massachusetts (2021), -
https://scholar.google.com/scholar_case?case=9503464558169105254&q=United+States+of+American+v.+Wolas,+Criminal+Action+No.+17-10198-FDS,United+States+District+Court,+D.+Massachusetts+(2021)&hl=en&as_sdt=20000003=

Best regards, 

David
 

On 4/18/2025 at 5:40 PM, Peter Gulia said:

Wallace v. Wildensee, 990 N.W.2d 637, 2023

 

 

[Peter Gulia]

1 hour ago, fmsinc said:

Unfortunately our Legislature in Maryland doesn't know a QDRO from a Quahog and routinely enacts legislation that creates more problems than it resolves, often in areas of law with respect to which Federal preemption applies to the Agreement of the parties or the consequences intended by the trial judge.