Timely Filing of a Domestic Relations Order

We are all human, humans err, lawyers are human, ergo lawyers will occasionally make errors in the course of the Qualified Domestic Relations Order process. With this inevitability in mind consider the following quote taken from Met. Life v. Wheaton; 42 F.3d 1080.

“It is asking too much of domestic relations lawyers and judges to expect them to dot every i and cross every t in formulating divorce decrees that have ERISA implications. Ideally, every domestic relations lawyer should be conversant with ERISA, but it is unrealistic to expect all of them to be. We do not think Congress meant to ask the impossible, not the literally, but the humanly, impossible, or to make a suit for legal malpractice the sole recourse of an ERISA beneficiary harmed by a lawyer's failure to navigate the treacherous shoals with which the modern state-federal law of employee benefits abounds.”

The goal of this Practice Aid is to alert the practitioner to the problems resulting from an attorney’s failure to timely file a Domestic Relations Order. The reasons for delay are numerous. Nevertheless, the ERISA rules provide no basis for mitigation of such failure by an attorney to timely file a Domestic Relations Order. If the Domestic Relations Order is not timely filed with the Plan Administrator, the likelihood of loss of entitlement by an Alternate Payee is significant. This Practice Aid seeks to establish firmly in the practitioner’s mind the fact that Domestic Relations Orders must be timely filed. In particular, it is the obligation of attorneys representing Alternate Payees to exercise due diligence as regards the timely filing of a Domestic Relations Order. The attorney representing an Alternate Payee must know the rules regarding the timely filing of Domestic Relations Orders and comply with these rules. In this area of family law an attorney’s failure to act timely often results in additional litigation as well as exacerbated relations or worse with a client. This Practice Aid is Troyan, Inc.’s attempt to inform family lawyers so that they may have greater awareness of these risks.

TIMELY FILING

The term “timely filing” suggests a number of questions:

• WHAT CONSTITUTES THE TIMELY FILING OF A DOMESTIC RELATIONS ORDER WITH THE PLAN ADMINISTRATOR?
• CAN A DOMESTIC RELATIONS ORDER BE FILED PRIOR TO DIVORCE?

Prior to addressing the above questions it is necessary to first resolve two more fundamental questions:

• Why the need to “file” your Domestic Relations Order with the Plan Administrator?
• Does receipt of a Domestic Relations Order by the Plan Administrator subsequent to divorce enhance the risk of loss of entitlement to an Alternate Payee?

Too many practitioners hold the view that a Final Judgment of Divorce is all that is necessary to guarantee that an award to an Alternate Payee will be implemented pursuant to the Final Decree. Such practitioners believe that there is no urgency regarding the filing of a Domestic Relations Order with the Plan Administrator. Moreover, these practitioners also hold that upon the death or retirement of the Titled Spouse all that is required is to then make the Plan Administrator aware of the terms of the Final Judgment of Divorce. This view holds that events give effect to the provisions of the Final Judgment of Divorce. Regarding such perilous view we remind the practitioner of Guzman v. Commonwealth Edison, 2000 U.S. Dist. LEXIS 18869:

…it was not possible to enter a valid qualified domestic relations order after the plan participant had died. The survivor benefits were fixed at the participant's death…

Troyan, Inc. suggests in the strongest terms that the practitioner file the Domestic Relations Order at the earliest possible date. This will be the thrust of the balance of this Practice Aid.

Those who delay filing a Domestic Relations Order argue that they find no ERISA provisions suggesting that an Alternate Payee has no “rights” in the pension plans of the Titled Spouse until he or she obtains a QDRO. In small part this view has merit, however, the practitioner who delays fails to recognize the distinction between a right and an enforceable right. Failure to function with a full appreciation of this distinction will lead to loss of entitlement by an Alternate Payee. This distinction was explained in both Gendreau (122 F.3d 815) and Tise (234 F3d 415). Both cases make clear that the purpose of the QDRO is to enable an Alternate Payee to enforce the rights awarded to said Alternate Payee in the decree of divorce. The fact that pursuant to a decree of divorce an Alternate Payee has been awarded all or a portion of the pension benefits of the Titled Spouse, including survivor benefits, must not lull the practitioner into a false sense of security or encourage delay in the Qualification of the Domestic Relations Order process. Absent a Qualified Domestic Relations Order an award to an Alternate Payee of all or a portion of the Titled Spouse’s pension benefits is without intrinsic effect. Be clear! No portion of an award to the Alternate Payee can be implemented absent a Qualified Domestic Relations Order.

Commentary:
A practitioner's failure to timely file the Domestic Relations Order facilitates complications that are not clear to the inexperienced attorney. Prior to drafting a Property Settlement Agreement the experienced attorney is mindful of contingencies; e.g. death of the Titled Spouse shortly after divorce, remarriage of the Titled Spouse at any time [but worse if shortly after divorce], death of the prospective Alternate Payee. Moreover, if the Titled Spouse is a member of the military the interest of an Alternate Payee can be easily defeated in whole or in part by failure to timely file a Domestic Relations Order.

THE OPTIMAL TIME TO FILE
A DOMESTIC RELATIONS ORDER

The time to file a Domestic Relations Order is a function of the form of settlement. The two forms of settlement are:

1. pursuant to a Property Settlement Agreement or
2. a Judicially Imposed Settlement.

TIME TO FILE a Domestic Relations Order pursuant to a Property Settlement Agreement.

The practitioner will look to 29 USC 1056(d)(3)(D)(ii) for guidance. This section defines a Domestic Relations Order as:

(ii) the term "domestic relations order" means any judgment, decree, or order (including approval of a property settlement agreement)…[emphasis mine]

Based on this portion of ERISA the practitioner may file his or her Domestic Relations Order as soon as the terms of a Property Settlement Agreement have been agreed upon. It is again emphasized that “divorce” is not a prerequisite to filing for the Qualification of a Domestic Relations Order. Since ERISA is not a bar to filing a Domestic Relations Order based upon a Property Settlement Agreement, Troyan, Inc. suggests that the optimal time to file the Domestic Relations Order is as soon as practicable subsequent to the execution of a Property Settlement Agreement. Whenever possible such agreement need not be pursuant to a comprehensive agreement settling all issues. All that is required is finalization of the division of pension rights. It is understood that circumstances may bar a settlement that is limited to pension issues. When such is the case then the Domestic Relations Order is to be filed as soon as possible subsequent to a comprehensive settlement. As an alternative the attorney representing the Alternate Payee may have a Domestic Relations Order that has been agreed to by his or her adversary ready for execution by the court simultaneous with the granting of the Final Judgment of Divorce.

TIME TO FILE a Domestic Relations Order pursuant to a judicially imposed settlement.

Every effort should be made to avoid this form of settlement! The danger is that such settlement may be at variance with a plan’s provisions, may not recognize special language that is essential to give to an Alternate Payee a particular form of benefit(s) or require a format that is at variance with a plan’s unique qualification process. Because it is not reasonable to expect family court judges to have comprehensive and detailed knowledge of all State, Federal and ERISA plans, it is suggested that the attorney representing the Alternate Payee make clear to the court :

1. Each plan that is an element of the Titled Spouse’s total benefits program.
2. Which plans are Defined Contribution and which are Defined Benefit Plans.
3. The specific allocation procedures to divide the plans at “2” above.
4. The distinctions between “death benefits” and “survivor benefits”.
5. Suggested language for:
   • the allocation of retirement benefits in a manner consistent with the subject plan’s parameters.
   • the allocation of death or survivor benefits in a manner and form consistent with the subject plan’s parameters.
6. Unique qualification procedures of certain plans; e.g. UPS, Allstate, Military.

ALERT:
Were the Titled Spouse to leave the courtroom immediately after a divorce resulting from a judicially imposed settlement and remarry shortly thereafter the probability is great that any award of survivor benefits to the Former Spouse would be extinguished. This is increasingly the case since many plans no longer enforce the length of marriage requirements found at 29 USC 1055(f)(2), which provide:

2. if--
   (A) A participant marries within 1 year before the annuity starting date, and
   (B) the participant and the participant's spouse in such marriage have been married for at least a 1-year period ending on or before the date of the participant's death..

Most plans routinely note the fact that the Titled Spouse is married without regard to the duration of such marriage. Let us now assume in a potential scenario that the Titled Spouse went from the court house (divorce) to the church (marriage) to the funeral home (death). The probability is great that under this scenario, the new spouse of the Titled Spouse would be the recipient of the full Joint & Survivor Annuity and the Joint & Survivor Annuity awarded to the Alternate Payee would be extinguished. This illustration contains some puff, however, for a period greater than a day or a week, this scenario becomes increasingly realistic. The burdened attorney is clearly the attorney representing an Alternate Payee.

Also consider the fact that it is not unlikely that some time will be required subsequent to the court’s decree for a careful examination of such decree. Counsel will require time for study and preparation of a Domestic Relations Order. Then, additional time will be required to secure acceptance of the draft from opposing counsel. It is during this protracted period from decree to execution of an agreed upon Domestic Relations Order that the rights of the Alternate Payee are unquestionably at risk. If a Plan Administrator rigidly enforces the applicable ERISA provisions regarding the necessity of a Qualified Domestic Relations Order, then an adverse for an event for an Alternate Payee will occur as a result of a practitioners failure to timely file. When this scenario is possible, the attorney representing a potential Alternate Payee is urged to engage in mitigating action. A paper trail must be established demonstrating:

1. the attorney made the circumstances described above clear to his or her client.
2. immediately upon entry of divorce, the attorney representing the Alternate Payee contacted the plan and sought relief from the outcomes described above.

COMMENTARY:
Prior to finalizing the pension portion of the Property Settlement Agreement the practitioner is urged to consult with his or her QDRO attorney to confirm that both form and substance are consistent with the qualification parameters of the subject plan(s).

COMMENTARY:
Other than the federal government and the military most Plan Administrators permit a draft Order to be submitted prior to a formal request for Qualification. When this opportunity is available be sure to take full advantage, however, be clear; absent a Qualified Domestic Relations Order an Alternate Payee is without enforceable rights against a pension.

PRACTICE AID:
As indicated above, once the pension rights of the Alternate Payee have been established; either by Agreement or Decree, it becomes the burden of the attorney representing such Alternate Payee to protect and implement this award. An ongoing concern of an attorney representing an Alternate Payee is the loss or extinction of the survivor rights awarded to the Alternate Payee. The constant in all of the above is: IMMEDIATELY UPON DIVORCE AND ABSENT A QUALIFIED DOMESTIC RELATIONS ORDER AN ALTERNATE PAYEE HAS NO ENFORCEABLE CLAIM TO SURVIVOR RIGHTS.

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