Updates on the Division of Retirement Assets in Divorce Curtis Barnhill

Transcription

1 Updates on the Division of Retirement Assets in Divorce Curtis Barnhill May 19-20, 2016 University of Kansas School of Law

2 Presenter: Curtis G. Barnhill 1 The passage of the Retirement Equity Act of 1984 (REA), amending the Employee Retirement Income Security Act of 1974 (ERISA), provided rights to spouses to pension and retirement benefits and a statutory scheme for protection of those rights. In divorce situations, those rights are enforced through qualified domestic relations orders, often known by the acronym QDROs. Essentially, a QDRO divides pension or retirement accounts in divorces or separate maintenance actions. A QDRO can be used to allocation division of marital property or provide for maintenance or child support. 1 Curtis G. Barnhill has over 2 decades of experience in employee benefit law and plan administration. He received his JD from the University of Kansas in Mr. Barnhill also has a certificate in Employee Benefit Plan Administration from the International Foundation of Employee Benefit Plans (IFEPB) and a certificate in Employee Benefit Plans Portfolio Concepts and Management jointly conferred by the Wharton School of Business and the IFEPB. He has administered both defined benefit and defined contribution pension plans. Mr. Barnhill has made CLE presentations on employee benefit law to the Douglas County Bar Association, the Kansas Bar Association, the Kansas Women s Attorney Association, the Kansas City Metropolitan Bar Association, the Wyandotte County Bar Association, and the Saline-Ottawa Counties bar Association. He has also made presentations on employee benefit administration to the IFEBP and the National Coordinating Committee on Multiemployer Plans. Mr. Barnhill is available to draft and/or qualify QDROs, COAPs, etc.; he is also available for consultation. For more information, please contact: Curtis G. Barnhill, P.A. 900 Massachusetts Street, Suite 600 Lawrence, Kansas (785) office (785) fax cgb@barnhillatlaw.com Page 1 of 5

3 K.S.A (a) provides that a decree of divorce shall divide the real and personal property of the parties, including any retirement and pension plans. A QDRO provides the mechanism to accomplish this division. The effectuation of a QDRO is essentially a two-step process. Step one is drafting the order and having it entered by the court. At this point, it is a domestic relations order, or DRO. Next, it must be submitted to plan administrator to determine whether the DRO can be qualified pursuant to the terms of the plan. If it is approved, then the DRO is qualified and the DRO is now a QDRO. It seems simple, and in fact, the statutory law on QDROs is relatively sparse. There are a few lines in ERISA. There is parallel codification under the Internal Revenue Code, and some US DOL and Treasury Regulations. The provisions in federal law for QDROs are Section 206(d)(3) of ERISA, 29 U.S.C 1056(d)(3) and section 414(p) of the Internal Revenue Code, 26 U.S.C 414(p). QDROs are made pursuant to state domestic relations law (including community property law), and are authorized by federal law. ERISA only applies to retirement plans sponsored by private employers. It does not apply to federal, state, and local government plans. Most state and local plans, however, are qualified plans under the Internal Revenue Code, therefore the parallel IRC QDRO provisions apply to state and local government plans that are qualified plans. Neither ERISA nor the QDRO provisions of the IRC, however, apply to the three (3) retirement plans for federal civil service employees: the Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS), and the Thrift Savings Plan (TSP). Although there are QDRO-like procedures for each of these plans, practitioners should verse themselves with the applicable statutes and regulations for each of these three plans. Likewise, there is an entire statutory scheme, complete with regulations, for the division of military retired pay. The primary statute is the Uniform Services Former Spouses Protection Act (USFSPA). The law concerning the division of military retired pay is complex. In all of the above, the action begins with an order issued pursuant to state domestic relations law. For purposes of discussion, we will refer to all of the above-type orders as QDROs. Most, but not all, of the case law is in state court. QDRO litigation. There seems to have been an up-tick in QDRO litigation over the last 10 years. Perhaps that is because often retirement plans are the largest or second largest asset in a divorce. Page 2 of 5

4 QDRO are also deceptively complex. QDROs can be a malpractice trap for the unwary attorney. Case Review Threatt v. Hollinquest, Docket No. 112, (unpublished. KS. Court of Appeals decision, August 28, 2015) Husband s retirement plan included both retirement and disability components. Disability benefits were covered by the parties separate agreement and were divisible by QDRO, even though the disability benefits were not separately identified in the agreement. Given the plain language of the settlement agreement, the Retirement Plan QDRO and the later Disability Plan QDRO dealt with property that Lamont and Lynne agreed was marital property subject to division. The District court did not err in approving the Disability Plan QDRO. In the Matter of the Marriage of Larimore 362 P.3d 843, Kansas Court of Appeals, Nov. 6, Provision of divorce judgment that entitled wife to portion of husband s retirement account had been extinguished (after 12 years) under dormancy statute; the fact that retirement benefits were not yet payable did not toll running of the dormancy statute. Fox v. Fox 50 Kan. App.2d 62, 322 P.3d 400, Kansas Court of Appeals, March 14, 2014 District Court s grant of motion to dismiss for lack of subject matter jurisdiction affirmed. Following divorce in Germany, wife for requested Kansas court to enter order dividing military retirement pursuant to a marital property division. Court declined to extend meaning of an action under KSA to include a divorce filed in a foreign country to two parties who never lived in Kansas and owned no property in Kansas. Court upheld dismissal of action for lack of subject matter jurisdiction. The phrase consent to the jurisdiction of the court in the USFSPA refers to personal jurisdiction, not subject matter jurisdiction. Parties cannot confer subject matter jurisdiction by consent, waiver, or estoppel. Note, some states, such as PA, have statutes that grant courts SMJ in these cases, but not Kansas. Page 3 of 5

5 In the Matter of Ann Gottberg Soderberg 298 Kan. 820, Kansas Supreme Court 2014 Soderberg was retained in a divorce action in She prepared and filed a QDRO that didn t meet the requirements of the plan administrators. Staff counsel for the plan wrote Soderberg to inform her of the deficiencies and how to cure them, but Soderberg never responded. She withdrew as counsel for the client in In 2012, the client discovered that the QDRO had never been filed or approved. The client contacted Soderberg, who promised to review the matter and get back with the client. She never corrected or filed a QDRO or returned the client s later calls. Soderberg was suspended for 18 months and subject to a Rule 219 reinstatement hearing. In order to be reinstated, she has to ensure the deficient QDRO is corrected Violations of: KRPC 1.3, diligence, and KRPC 1.16(d), by failing to correct deficiencies of the QDRO before terminating her representation of the client. In the Matter of Andrew M. Delaney 300 Kan. 1090, 338 P.3d 11, Kansas Supreme Court 2014 Delaney was retained in a divorce in October Hearing in April 2008, and journal entry filed in August Delaney did not file QDRO until January of following year, by which time the account had lost $3,000. Court found that this was a violation of KRPC 1.3, diligence. There were findings of violations of other sections of KRPC unrelated to the QDRO. License suspended for 6 months, suspension suspended. Delaney was placed on probation for 2 years. Steck, Bonnie L. v. OPM Merit Systems Protection Board - Initial Decisions, No PH , Feb. 18, WL (Personnet) Appellant appealed after OPM reconsidered its prior decision and denied her application for CSRS survivor annuity as former spouse of Bruce Steck. OPM denied appellant s request because it found that Mr. Steck did not elect to provide appellant with survivor annuity within 2 years of their divorce and because decree did not make provisions to award the appellant one. OPM s decision reversed for failure to provide sufficient notice. Page 4 of 5

6 In Re: [Redacted] 2015 WL , May 21, 2015 Claims Case No CL Dept. of Defense, Office of Hearings and Appeals Claims Appeals Board Service member was in the Air National Guard in Nebraska. His former spouse received an award of ½ of his military retired pay. PSA agreement used term QDRO and other ERISA language. DFAS received the QDRO on October 27, Service member was not eligible for retired pay benefits until he reached 60 years of age, in DFAS did not beginning paying former spouse until June 2013, but determined she became eligible for benefits as of May 1, 2012., therefore was due arrearage in the amount of $9, DFAS paid this amount as a lump sum to former spouse. This amount was erroneously paid to Service Member, and DFAS deducted it from future payments to Service Member. Claims Appeal Board held that all valid court orders directing portion of retired pay to former spouse must be honored if the divorced couple were married for at least 10 years while the member was in service. Denied service member s appeal. Page 5 of 5