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.

10 Years Means 10 Years—Not 9 years, 364 Days, and 6 Hours

10 Years Means 10 Years—Not 9 years, 364 Days, and 6 Hours

Moon v. Shalala, ND New York No. 93-CV-1267 (October 4, 1994).

Issues: How is the length of a marriage calculated for purposes of determining whether one is considered a “surviving divorced wife” under 42 U.S.C. §416(d)(2)? Does an individual who is just one day short of being married for 10 years count as a “surviving divorced wife” entitled to the Social Security benefits of her former spouse?

Decision: The Federal District Court of the Northern District of New York determined that the length of marriage for purposes of 42 U.S.C. §416(d)(2) excludes the first day of marriage but includes the final day of marriage. The court further determined that for the purposes of being considered a “surviving divorced wife” under 42 U.S.C. §416(d)(2), the parties must have been married for exactly 10 years or longer—even being short one day of 10 years will make the spouse ineligible for benefits.

Pursuant to federal law, to be eligible to receive survivor Social Security benefits of her deceased former spouse, a woman must be married to her spouse for “a period of 10 years immediately before the date the divorce becomes effective.” 42 U.S.C. §402(e); 42 U.S.C. §416(d) (please note, this benefit is not solely for women, there are separate provisions related to a “surviving divorced husband”). In this case, the Husband and Wife were married on December 13, 1969. On December 12, 1979, the court filed the final, granted divorce decree. The Husband died on May 14, 1992. Subsequently, the Wife filed for divorced surviving wife benefits under Social Security. The administrative law judge granted the Wife’s application. He determined that, as a practical matter, the Wife and Husband had been married for 10 years thereby entitling her to a survivor benefit. However, the Appeals Council reviewed the case and determined that the Wife was married one day less than 10 years. According to the Council, when calculating the length of marriage, the first day of marriage is not counted and the last day is counted. As such, the Wife needed to be married to the Husband until at least December 13, 1979 to be eligible for surviving divorced wife benefits. The Appeals Council determined because the Wife was married for one day less than 10 years, she should not receive any benefits related to her former Husband’s Social Security.

The Wife appealed the decision to the Federal District Court of the Northern District of New York claiming that the first day of marriage should be considered toward the 10-year requirement. In the alternative, even if the first day of marriage is not considered, it is inequitable, inapposite to good conscience, and inapposite to the meaning of the Social Security Act to deny her benefits as she was only short of the 10-year requirement by less than a full day (the final decree was filed only 18 hours before the start of December 13, 1979). The District Court rejected the Wife’s arguments and agreed with the Appeals Council, that the federal law is clear—one must be married at least 10 years to receive Social Security benefits from their former spouse. There is no consideration of equity; either the parties were married for 10 years or they weren’t.  

Observation: This case is indicative of how other courts have treated Social Security’s 10-year rule. For the purposes of receiving either survivor benefits or retirement benefits based upon a former spouse, the marriage must have lasted at least 10 years—no exceptions. See James V. Astrue, 519 F. Supp. 2d 193 (D.Mass., 2007). As a DR attorney, you must be aware of the length of the parties’ marriage. Because, as demonstrated by this case, even a few hours can make a huge impact on the benefits your client will receive.

How we can help: We have been in the business of advising DR attorneys on how retirement assets are treated in divorce for over 30 years. We are aware of how DB plans, DC plans, military pensions, state pensions, and even Social Security benefits are treated in a divorce. We are able to advise you on the best course of action for you and your client when it comes to retirement benefits.

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.

Discover Retirement Assets Early and Completely

Discover Retirement Assets Early and Completely

Over the years we have witnessed too many retirement assets that could not be divided as intended, or at all, because the asset was either not timely discovered or fully understood.  Pensions are often the single largest asset a couple has, so you should take full advantage of the discovery process to ensure your client receives what you and your client intended.

Early Discovery:  Absent special circumstances, a court will typically not amend or revise a final divorce decree or settlement agreement.  Even if such circumstances exist, most courts won’t disturb a final decree if the issue is not raised within one year. However, many attorneys wait until after the final decree to conduct thorough discovery of retirement assets.  You have more leverage before the final decree to force the opposing party (or a plan sponsor) to comply with discovery requests.

Also, don’t rely on or wait for your QDRO preparer to conduct discovery, especially since far too many parties delay having the QDRO prepared till well after the divorce is finalized.  For example, the Wife in Semmelhaack v. Semmelhaack, 2013-Ohio-3568, did not request a QDRO till two years after the final decree.  The QDRO preparer discovered that Husband had a second pension plan (with the same employer as the first plan) that was not addressed in the separation agreement, and that had a much larger marital benefit than the first plan.  The Court mentioned it was suspicious of Husband’s failure to disclose the second plan, but still refused to modify the “unambiguous” separation agreement that did not include the second plan.  Interestingly, Husband mentioned in his brief that if Wife had timely requested a QDRO she might have been able to file a Rule 60(B) motion.  To avoid making this same mistake, we recommend sending discovery requests to all the opposing party’s present and past employers early in the proceedings, and to begin the QDRO process promptly.

Complete Discovery:  Not all retirement assets are the same.  Many retirement assets have unique and complicated provisions regarding benefit accrual, vesting, distribution, division, etc.  You need more than a plan name and account balance to fully understand the amount and nature of a retirement asset.

For instance, we are aware of a major manufacturer’s union pension plan that won’t pay any portion of a special benefit to a former spouse unless the QDRO specifically directs the plan administrator to do so.  Furthermore, the model QDRO for this plan makes no mention of the special benefit.  An attorney (who had used the plan’s model QDRO) recently asked us to help him understand why his client was receiving so much less per month than the participant.  Not completely discovering how the plan works cost his client hundreds of dollars per month.

How We Can Help:  We have tools and services to help you discover and understand all the couple’s retirement assets before the property division is finalized.

DROP Decision

DROP Decision

Archer v. Dunton, 9th Dist. Summit C.A. No. 29091, 2019-Ohio-1971 (Decided May 22, 2019). 

Issue: What is a trial court to do when a 1993 divorce decree states that “the Wife is entitled to one-half of the Husband’s pension through the Police and Fire Pension Fund for the State of Ohio as of the date of the divorce”  and the plan participant enters the Deferred Retirement Option Plan (DROP) in 2003? Keep in mind that the DROP program did not exist at the time of the divorce and was not mentioned in the separation agreement.

Decision: The Ninth District court of appeals reversed the trial court which had held that the funds in the DROP account were not marital property. Instead, the court of appeals awarded the non-participant a share of the DROP account. However, the non-participant’s share of the DROP account was limited to half of the benefit accrued as of the date of the divorce in 1993 (frozen coverture) and not a traditional coverture share (“proportionate share”) of the pension at retirement as explained in Hoyt v. Hoyt, 53 Ohio St.3d 268 (1990) and Daniel v. Daniel, 139 Ohio St.3d 275, 2014-Ohio-1161.

Observation: The court of appeals detailed how under a DROP account “is funded, in part, by marital property in the form of Ohio Police and Fire Pension Fund Benefits [Mr. Dunton] earned during the course of the marriage.” It noted that because “Marital assets retain their character…” the DROP account is “continually funded by both marital property, in the form of benefits earned during the course of the marriage, and nonmarital property, in the form of benefits earned before and after the marriage as well as current contributions.”

How we can help: We offer model separation agreement language on our website for free. We are also available to help you draft custom settlement agreement language to ensure that your client receives the benefit that he/she agreed to and prevent claims of ambiguity in the separation language.

Perils in Delaying Filing a QDRO and the Complex World of Taft-Hartley (Multiemployer) Plans

Perils in Delaying Filing a QDRO and the Complex World of Taft-Hartley (Multiemployer) Plans

Davis v. Boilermaker-Blacksmith National Pension Trust, ND Ohio No. 3:16-cv-2746 (March 4, 2019).

Issue: Was the Plan’s determination that the former spouse of the participant should receive zero benefits from the Plan proper simply because the deceased participant failed to redesignate his former spouse as the beneficiary of his survivorship benefits after divorce?

Decision: The United States District Court for Northern Ohio, Western Division, determined the Plan’s decision to deny the former spouse survivorship benefits was rational and in accordance with the Plan documents. As such, the Wife received zero benefits from her former spouse’s pension. This case had some unique facts. The Husband and Wife were divorced on August 25, 2014. At the time of divorce, Wife was designated as the beneficiary of Husband’s survivorship benefits from his pension held by the Boilermakers-Blacksmith National Pension Trust (a retirement plan administrated by a board comprised of half union representatives and half representatives of the employers who participate in the Plan; this type of plan is commonly referred to as a “Taft-Hartely plan,” “Multiemployer plan,” or a “Union plan”). After the divorce, Wife and Husband reconciled and planned to remarry in December 2015. However, Husband died on November 28, 2015—15 months after the divorce and one month prior to the planned remarriage. At the time of Husband’s death, Wife was still designated as his beneficiary for the survivorship benefits of his pension but this designation was made prior to the divorce.

When Wife attempted to claim the survivorship benefits, the Plan denied her the benefits and cited to the following Plan provision:

[I]n the event a Participant’s marriage is dissolved, any designation of such Participant’s spouse as beneficiary shall be deemed null and void as of the date of dissolution unless the Participant redesignates such spouse as his beneficiary subsequent to dissolution. (emphasis added).

Courts give retirement plans broad discretion to interpret the provisions of their plan. The plan’s interpretation of its own provisions will be upheld as long as the interpretation is rational; even in the face of another equally rational interpretation. Because the Husband failed to redesignate his former spouse as the beneficiary, and presumably there was no QDRO filed with the Plan, the only argument Wife could make is that the Plan states a designation for survivor benefits of a former spouse are only null and void when after a “dissolution”—not a “divorce.” However, the court rejected the Wife’s argument. The court found the Plan’s interpretation of its provisions that a “dissolution” is the same as a “divorce” for the purposes of rendering a survivor beneficiary designation null and void was rational. As such, the Husband’s retirement benefits reverted to the Plan—they were not paid to the Wife.

Observation: This case demonstrates two key points. First, Taft-Hartley Plans are generally more complex than other retirement plans. Most have very specific requirements when it comes to dividing a retirement benefit. It is extremely difficult to get a court to reverse the plan’s determination after it has been made. As such, the unwary can lose everything.

Second, it is imperative to complete and submit a QDRO or other order dividing retirement benefits as soon as possible after divorce. Unexpected things happen, people die, plan record keepers change, plans change their procedures, etc. Those who wait may end up like the wife in this case—receiving absolutely no benefits.

How we can help: We are keenly aware of Taft-Hartley plans and their complexity. We have drafted tens of thousands of QDROs dividing retirement benefits held by Taft-Hartley plans. Further, we can help you to timely take the correct action to protect your client’s interests. Once we are provided with all necessary information, we complete an order dividing retirement benefits in five to seven business days. We also provide advice to our attorney clients, including making sure to have the participant redesignate former spouse as his/her beneficiary for survivorship benefits immediately after divorce.