Category: Separation Agreement Language

Use the Right Letters to Divide Retirement Benefits

Use the Right Letters to Divide Retirement Benefits

Once you decide what retirement benefits are to be divided, you must choose the proper court order to effectuate the division.  The following is a brief discussion of several different kinds of orders used to divide the most common types of retirement plans.  A more detailed explanation of these orders can be found at qdrogroup.com or by speaking to one of our experts.

Private Employer Plans-Qualified

The most common plans that private employers offer their employees, such as traditional pensions or 401(k) plans, are “qualified” plans within the meaning of the Tax Code and the Employee Retirement Income Security Act of 1974 (ERISA).  These qualified plans must be divided using the order that most people are familiar with—the Qualified Domestic Relations Order (QDRO).

Private Employer Plans-Nonqualified

Some private employers offer plans that are not qualified under the Tax Code/ERISA (e.g., top-hat plans).  These types of plans are referred to as “nonqualified” plans.  Some of these plans are divisible through a Domestic Relation Order (DRO).  As the name suggests, these orders are similar to QDROs.  However, they are not called “qualified” orders because they do not apply to qualified plans.

Some nonqualified plans are not divisible.  Instead, the participant may have to pay the alternate payee directly or the value of the plan should be offset from other marital assets.

State Plans

Plans offered by state governments for their employees are also not considered qualified under Tax Code/ERISA.  Some states require their own division orders to divide said plans (e.g., Ohio requires the use of a Division of Property Order (DOPO); Michigan, in some circumstances, requires the use of an Eligible Domestic Relations Order (EDRO)).  Other states, such as Indiana, do not allow for state employee benefits to be divided through an order. 

Federal Government Plans

Benefits in the Federal Employee Retirement System (FERS), the traditional pension offered to many federal employees; the Civil Service Retirement System (CSRS), which has been frozen to new participants for decades; or the Thrift Savings Plan (TSP), which is a defined contribution plan offered to federal employees, are divided through a Court Order Acceptable for Processing (COAP).

Benefits in the Foreign Service Pension System, which is for certain State Department employees, are automatically divided via statute—if the length of marriage/service in the plan meet the statutory requirements.  However, if the parties want to depart from the statutory division, the benefits may be divided through a spousal agreement that has been verified by a court or through a separate court order.

Military Pension Plans

Provided the marriage has met the 10/10 rule, the parties were married for at least 10 years and the service member has at least 10 years of satisfactory service during the marriage, a military pension plan can be divided through a Military Retired Pay Division Order (MRPDO).  If the parties do not meet the 10/10 rule, then payments must be established directly from the parties.

Questions?

Don’t worry if you feel lost with all of the acronyms, let alone how to draft the orders.  We have been in business for over 30 years helping attorneys to understand retirement benefits and to divide them.  Please feel free to give us a call and we would be happy to discuss your case with you.

Did the Separation Agreement/Judgment Entry cause the court to choose a frozen coverture QDRO over your traditional Hoyt-coverture Order?

Did the Separation Agreement/Judgment Entry cause the court to choose a frozen coverture QDRO over your traditional Hoyt-coverture Order?

Unfortunately, the answer to that question is increasingly “Yes.” We base this on our extensive case law review of retirement division language in Judgment Entries and our two-hour Ohio Judicial College interactive presentation in June.

Part of that Responder system interaction was having the judges and magistrates read actual Judgment Entry and then vote if the language was clear or ambiguous and whether it leaned towards freezing the benefit or adopting traditional coverture. After the judges voted, we then put the actual court decision on the screen and discussed the Court of Appeal decision. The five of us doing the presentation worked hard on the presentation and even harder on the materials – which we now offer you.

If you have any questions regarding traditional versus frozen coverture, survivorship, the dangers of awarding offsetting assets and tracing separate property, the materials will be useful. While the Judicial College responses remain confidential, the case reviews in the materials are illuminating and clearly demonstrate the inconsistency between various districts in interpreting Judgment Entries.

The cases that discussed how various courts interpreted Judgment Entry language were:

Hoyt v, Hoyt, 53 Ohio St.3d 177, Keller v Keller, 5th Dist. 18 CAP 01 0008-0010, 2018-Ohio-3141, Cameron V. Cameron, 10th Dist. No. 12AP-349, 2012-Ohio-6258, Cook v. Cook, 9th Dist. Summit C.A. 28575, 2017-Ohio-8848, George v. George, 9th Dist. Summit C.A. No. 18866 (Sept. 23, 1998), Nappi v. Nappi, 11th Dist. Ashtabula Case No. 2013-A-0041, 2014-Ohio-2696.

The cases discussed in our extensive Contract Construction section were:

State v. Porterfield, 106 Ohio St.3d 5, Meyer v. Meyer, 12th Dist. Butler No. CA2015-12-225, 2016-Ohio-8100, Houchins v. Houchins, 5th Dist. Stark No. 2006CA00205, 2007-Ohio-1450, Graham v. Drydock Coal Co., 76 Ohio St.3d 311 (1996).

How we can help: The best help we can provide is our free separation agreement language, especially our assignment clause language and survivorship clause. However, our ERISA attorneys can also help after that as well. For example, if the court signals that it will sign or intends to sign a frozen coverture order give us a quick call for our advice.  Our attorneys can help you understand how each court will look at the language de novo and how straightforward it should be to establish the ambiguity of JE language by simply using our research to demonstrate how other districts have taken virtually (or exactly!) the same language and come to a different conclusion. That establishes the underlying legal necessity of having two “reasonable” interpretations, unless, of course, you reject the other districts as unreasonable.

Language Comes Back to Bite a Decade Later

Language Comes Back to Bite a Decade Later

Johnson v. McCarthy, 10th Dist. No. 17AP-655, 2019-Ohio-3489 (August 29, 2019).

Issue:  What is the date of valuation used for dividing a defined benefit pension plan when no specific date is listed?

Decision:  The Tenth District Court of Appeals determined that the judgment entry language at issue in this case “clearly” required the defined benefit plan to be divided using the “frozen” method—meaning the benefit is valued at the time of divorce and not at the time of retirement.  In this case, the parties were divorced in 2005.  Two retirement plans were divided in the divorce—one of which was an IBM pension.  In regard to the IBM pension, the judgment entry stated, in part:

[Wife] is awarded an equal division of the [IBM] personal pension plan . . . [Husband] shall promptly and fully cooperate with the transfer of the one half interests awarded to [Wife] in each of the above retirement plans to [Wife’s] name via a Qualified Domestic Relations Order, rollover or other appropriate instrument.

In 2015, the Husband retired.  In 2017, nearly 12 years after the parties’ divorce, Wife moved the court for clarification of the 2005 judgment entry regarding the IBM pension.  Wife contended that the pension was meant to be divided using the traditional coverture approach, which values the marital portion of a pension at retirement.  Husband argued that the judgment entry valued the marital portion of the pension at the date of divorce (i.e., the frozen method).

The trial court determined that the language of the judgment entry was “unambiguous” meaning no cannons of contract construction needed to be employed to interpret the judgment entry.  The trial court determined that the judgment entry meant for the IBM pension to be valued on the date of divorce.  The trial court acknowledged that no date of valuation was listed but determined that where the judgment entry fails to designate a date of valuation then the date of the marriage’s termination controls.  On appeal, the Tenth District affirmed the trial court’s decision.

We will be following this case and provide any updates if it is appealed.

Discussion:  This case represents an unsettling trend that we have noticed in recent years.  Ohio courts of appeals are ignoring and contradicting the Ohio Supreme Court’s decision in Hoyt v. Hoyt, 53 Ohio St.3d 177 (1990), and its progeny, which held defined benefit plans are, generally, to be divided using the traditional coverture method as said method is, generally, the most equitable manner of division.  See Cox v. Cox, 12th Dist. Warren Case Nos. CA98-04-045, CA98-05-054, 1999 Ohio App. Lexis 227; see also Blair v. Blair, 3rd Dist. Paulding No. 11-15-04, 2016-Ohio-256.  The difference of valuing a pension using traditional coverture method instead of a frozen benefit method can be drastic. See Napi v. Napi, 11th Dist. Ashtabula No. 2013-A-0041, 2014-Ohio-2696 (if the court applied a frozen method of dividing the pension, the non-participant spouse would have received a monthly benefit of $77.82; if the court applied the traditional coverture method, which the court did, the non-participant spouse’s monthly benefit would be $302.77 per month).  We find this topic of courts moving further away from Hoyt to be particularly interesting.  We made a presentation to the Ohio Judicial College and wrote an article for the July/August 2019 Issue of the Domestic Relations Journal of Ohio, titled “Essential but Frequently Missing Pension Evidence in Divorce” on this subject.

Domestic relations attorneys should carefully review the language in their separation agreements and judgment entries regarding the division of retirement assets.  A few omitted words or the wrong language can make a world of difference to your clients.  Worse, the mistake may not become apparent until years later—or like this case over a decade later. 

How we can help:  We are always available to help attorneys with dividing retirement benefits in divorce, including before the separation agreement/judgment entry is final.  Also, we offer free recommended agreement language at qdrogroup.com and are willing to discuss your case and point you in the right direction.

A QDRO Only Implements a Settlement Agreement; It Cannot Change the Agreement

A QDRO Only Implements a Settlement Agreement; It Cannot Change the Agreement

Reynolds v. Turull, 12th Dist. Butler No. CA2018-10-197, 2019-Ohio-2863 (Decided July 15, 2019).

Issue: Is a QDRO valid that contains a different coverture fraction from the Separation Agreement, even if one of the parties claimed the change was bargained?

Decision: The Twelfth District Court of Appeals affirmed the trial court’s determination that such a QDRO is invalid.  In this case, the parties agreed that the Wife “shall be granted a [QDRO] granting to her fifty percent (50%) of the portions of the Husband’s Pension and 401(k) plans” that were accrued during the marriage.  That Separation Agreement was then incorporated into the final Divorce Decree. 

Wife had a QDRO drafted that calculated the marital portion of the Husband’s pension by using a coverture fraction “the numerator of which [was] the number of years of the marriage, and the denominator of which [was] the number of years of continuous service” since the date of divorce.  The trial court pointed out the formula proposed by the QDRO differed from the division agreed to in the Separation Agreement.  As Hoyt v. Hoyt, 53 Ohio St.3d 177 (1990) and its progeny have established, in Ohio, the marital portion of the pension is generally determined by using the traditional coverture fraction (years of service during the marriage divided by the participant’s total years of service).  As numerous courts have determined, when parties agree to divide the marital portion of a pension, they are agreeing to use the traditional coverture fraction unless otherwise agreed (except for certain pensions such as Taft-Hartley plans).  As the parties in this case agreed to divide the marital portion of Husband’s pension, they agreed to implement the coverture fraction set forth in Hoyt.  By changing the denominator in the fraction to exclude the years of service the parties were married, the trial court found Wife “significantly changed the ratio” in a manner that would benefit her.

In her defense, Wife claimed the parties agreed to employ the new ratio through negotiations.  However, the trial court rejected this argument because the alleged agreement was not reflected in the Separation Agreement, which was incorporated into the final Decree.  As indicated, the Twelfth District affirmed.

Observations: (1) Any agreement regarding the division of a retirement benefit must be included in the Separation Agreement and/or the Divorce Decree.  A QDRO cannot modify the Separation Agreement/Decree. (2) Dividing pension benefits can be perilous to those who are unfamiliar.  How and when a pension is divided makes a drastic difference to the parties.

How we can help: We have noticed an increasing issue with how and when pensions are divided.  As discussed above, pursuant to Hoyt, the default is to divide pensions using the traditional coverture fraction.  However, we have seen multiple cases where the pension was divided on a frozen basis, depriving the alternate payee over 50% of the value of his/her benefit.  We believe the issues with dividing pensions is simple – they are becoming more and more rare so people are unaware of the pitfalls pensions present.  Because of this, we are working on a new package to help attorneys properly divide pension benefits.  This defined benefit package will help attorneys throughout the entire process from recognizing the most beneficial way to divide the pension, to offering testimony at a reduced rate, and a reduction on the price of drafting a QDRO.  We intend to announce this new product in the next few months.  Please stay tuned and be sure to subscribe to stay up-to-date.

Divorce Decrees are Final; Make Sure all Retirement Benefits are Addressed

Divorce Decrees are Final; Make Sure all Retirement Benefits are Addressed

Schaad v. Schaad, 5th Dist. Morgan No. CV05-098, 2019-Ohio-2553 (Decided June 19, 2019).

Issue: Can a court redistribute property/order spousal support at the time of retirement, in a manner that differs from the divorce decree, to make the division “equitable?”

Decision: The Fifth District Court of Appeals determined the trial court did not have the ability to order a division of retirement benefits/spousal support, which were inconsistent with the divorce decree.  The Wife in this case had a pension from the State Teachers Retirement System of Ohio (“STRS”).  The parties divorced in 2007.  At the time of divorce, the decree stated that Husband would receive half of Wife’s STRS pension offset by his social security benefit (this is common in State of Ohio plans such as STRS because the Participant’s social security benefit is reduced by virtue of participating in the plan).  With the social security offset, Husband’s portion of Wife’s STRS was calculated to be 43.27%.

In 2010, Wife retired so both her and Husband began receiving their respective portions of the STRS benefit.  After her retirement, Wife became aware that Husband was receiving veterans benefits, which, when combined with his portion of Wife’s STRS benefit, resulted in Husband receiving a higher monthly income than Wife.  In 2018, Wife filed a motion claiming her STRS benefit was divided improperly, in part, because Husband’s veteran benefits were not addressed in the divorce decree.  Husband argued his veterans benefits were separate property and that is why they were not addressed in the decree.  The trial court granted Wife’s motion and vacated the division of property order dividing Wife’s pension – thereby rescinding Husband’s right to the STRS benefit.  The trial court further ordered Husband to pay Wife spousal support, which was never mentioned in the divorce decree, to “equalize” the parties’ monthly incomes.

On appeal, the Fifth District Court of Appeals found the trial court exceeded its authority in altering the divorce decree by revoking Husband’s right to the STRS benefit and requiring Husband to pay spousal support.  The Fifth District held the trial court was without authority to modify the decree after it had been ordered.  Courts are permitted to clarify divorce decrees; however, they cannot not alter them after they are final.

Observation: Divorce decrees, like executed settlement agreements, are final and binding.  It is vitally important that the language in decrees/settlement agreements are correct and cover all retirement assets.  The post-divorce litigation in this matter could have been avoided by simply addressing the Husband’s veterans benefits in the divorce decree.  If the benefits were addressed, even if simply to state they were separate property, there would have been no grounds for Wife to bring her motion.  Although Husband was eventually successful in this action, he incurred additional costs.

How we can help: We can help you with all stages of litigation to ensure that your client receives his/her correct share of the marital retirement benefit.  We provide assistance in discovery of assets, we provide advice on the most advantageous division of the benefits for your client, we help draft/review division language, we help in negotiating settlements, and we can be your expert witness at trial.

Incorrect Dollar Amount in a Separation Agreement

Incorrect Dollar Amount in a Separation Agreement

Kmet v. Kmet, 8th Dist. Cuyahoga No. 107759, 2019-Ohio-2443 (June 20, 2019).

Issue: Can the trial court alter the premarital portion of a retirement account listed in a final Separation Agreement after it has been discovered said amount is incorrect?

Decision: The Eighth District Court of Appeals determined that the parties were bound by the dollar amount listed in the Separation Agreement as the premarital portion and the trial court could not amend said amount—even after it was discovered that the amount was inaccurate. In this case, Husband and Wife entered into a Separation Agreement that listed the parties’ date of marriage as September 26, 1996. Based upon that date, it was determined that the premarital portion of the Husband’s Thrift Savings Plan or “TSP” (a retirement savings and investment plan for federal employees and members of the uniformed services that is similar to a 401(k) plan) was $28,328.29. During the hearing, the Magistrate specifically asked if the $28,328.29 was the premarital portion of the TSP and the rest of the funds were marital property that were to be divided 50/50. The Wife’s attorney answered in the affirmative.

It was later discovered that the parties had used the wrong marriage date. The Husband and Wife were actually married on September 26, 1995—not 1996. As such, the parties amended the original Separation Agreement to reflect the correct marriage date. However, in the amended Separation Agreement, the parties still had the premarital portion of the Husband’s TSP listed as $28,328.29. After the Separation Agreement was revised and incorporated into a decree, the Wife had an amended QDRO drafted to reflect the correct date of marriage. When the QDRO was prepared, it was discovered that the premarital portion of the TSP account was less than $28,328.29. The Husband refused to sign the QDRO that reflected less premarital property. The parties litigated the matter and the Magistrate held that the amount of $28,328.29 was incorrect as it was based on the incorrect date of marriage and the parties should not be held to that amount. The trial court adopted the Magistrate’s decision.

The Husband appealed, claiming that through the original Separation Agreement, the amended Separation Agreement, and the Wife’s attorney’s representations before the Magistrate, the parties had clearly agreed that the premarital portion of his TSP account was $28,328.29. As such, it was improper for the trial court to alter this agreement. The Eighth District agreed with the Husband and reversed the trial court. It recognized that language in a divorce decree is to be interpreted just like any other contract and words in a contract should be given their “ordinary meaning.” Because the original and amended Separation Agreements explicitly listed the premarital portion of the Husband’s TSP as $28,328.29, the parties were bound by that amount. The trial court could not amend the premarital portion—even if that amount was wrong.

Observation: The language in a Separation Agreement is critical. The wrong language can cost your client hundreds, thousands, or even hundreds of thousands of dollars over a lifetime. In such circumstances, aside from the damage to your client, it is possible you could be on the hook for malpractice or, in the very least, your reputation could be harmed.

How we can help: Our team has decades of experience in dividing retirement assets at divorce. We can help you to correctly value the retirement assets, negotiate a settlement, draft the Separation Agreement, and/or draft the QDRO.

Interplay of Local Rules and Separation Language Decision

Interplay of Local Rules and Separation Language Decision

Tekamp v. Tekamp, 12th Dist. Warren No. CA2018-08-092, 2019-Ohio-2382 (Decided June 17, 2019).

Issue: How should a court address gains and/or losses on the alternate payee’s portion of a defined contribution (DC) plan when the agreed-upon divorce decree is silent on the matter and an applicable local rule states gains and/or losses are assumed?

Decision: The Twelfth District Court of Appeals affirmed the Warren County Court of Common Pleas Domestic Relations Division’s (trial court) decision that the Wife’s portion of the Husband’s 401(k) benefit was to be adjusted for gains and/or losses between the date of divorce and the distribution—even though the decree was silent on the matter. The divorce decree in this case, which reflected the parties’ agreed-upon division of the Husband’s 401(k) account, simply stated, in relevant part, that said account was to be “divided 50/50 by QDRO.” The Husband contested a proposed Qualified Domestic Relations Order (QDRO) that awarded the Wife gains and/or losses from the period between divorce and distribution of the funds because the decree was silent on that issue. The trial court disagreed with the Husband’s argument because the trial court’s local rules explicitly state:

Unless otherwise agreed, a QDRO for a defined contribution plan shall contain the following provisions or be governed by these assumptions:

                                *                                             *                                             *

b. the alternate payee’s share of the benefits shall be credited with investment earnings and/or losses from the date of division until contribution[.]

(emphasis added).

The trial court determined, and the Court of Appeals affirmed, that, the above local rule establishes an assumption in the Warren County Court of Common Pleas Domestic Relations Division that, without explicit language to the contrary, gains and/or losses are included for the division of all DC plans.

Observation: For those of you that regularly read our blog, you will notice a theme that we have noticed over the years, the division language for retirement benefits matters. This is just another example. If, as the Husband claimed, the parties truly intended to exclude gains and/or losses from the Wife’s share of the 401(k) benefits, they should have explicitly included this intent in the agreed-upon divorce decree language.

Be aware of the local rules of the court you are in and be careful about the division language in the divorce decree or separation agreement. Otherwise, your client may not be receiving what he/she expected.

How we can help: We offer free separation agreement language on our website, our legal services section can help draft custom separation language for your case; we offer solutions for negotiations, and we of course can draft the QDRO for you.