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Family lawyers know that a Qualified Domestic Relations
Order is the only instrument used to assign all or
a portion of an employee benefit plan to a former spouse
(Alternate Payee). Unfortunately, there is less familiarity
with a transfer incident to divorce of employer welfare
plans providing life insurance. Employer provided Life
Insurance benefits are assignable in divorce under
the federal rules. The instrument
used to transfer employer life insurance benefits to
an Alternate Payee
is a Qualified Domestic Relations Order. It is emphasized
that the controlling law regarding the assignment of
employer life insurance pursuant to divorce is federal.
ERISA’s preemption statutes provide: ERISA shall
supersede any and all State laws insofar as they may
now or hereafter relate to any employee benefit plan. [29 USCA 1144(a)]. Amplifying this provision is 29
USCA 1144(c)(1) which defines “employee benefit
plan” as a welfare or pension plan. At 29 USCA
1002(1), employer provided life insurance plans are
treated as welfare plans.
Since the need to use a QDRO for the assignment of
employer provided life insurance to a former spouse
is not widely recognized, inexperienced practitioners
often resort to the imposition of a constructive trust
on the employee as the procedure to secure this benefit.
This raises a critical question:
Does ERISA preempt a state law permitting the imposition
of a constructive trust on employer life insurance
proceeds before their distribution to the designated
beneficiary?
Troyan, Inc.’s view is that in other than the Ninth
Circuit (Emard v. Hughes Aircraft Company, 153 F.3d
949) the majority view is YES! Hence, one of the objectives
of this Practice Aid is to discourage use of constructive
trusts as the procedure to secure Welfare Plan Life
Insurance for an Alternate Payee.
The focus of this Practice Aid is securing or denying
to a former spouse employer provided life insurance
as a result of a marriage dissolution action. When
denying this asset to the former spouse the inexperienced
practitioner assumes that the sole requirement to divest
a former spouse of her interest in the husband’s
employer provided life insurance is clear and specific
language in the divorce decree. Too often this is an
unwise assumption (McMillan v. Parrott, 913 F.2d 310,
Met Life v. Pettit, 164 F. 3d 857). What is ignored
is the fact that at the commencement of employment
the then happily married couple invariably elects the
wife/husband as the beneficiary of this life insurance.
At the time of divorce other pressures and concerns
generally cause the working spouse to fail to recognize
the necessity of formally removing the soon to be former
spouse as the designated beneficiary on this employer
provided life insurance policy. Counsel for the working
spouse, relying on the language of the divorce decree
offers no further advice on this point . As this Practice
Aid indicates, the language in the decree is not controlling,
rather the designation of beneficiary form on file
with the welfare plan will prevail. On this issue the
language of the divorce decree will be without effect.
CAUTION: This is the majority but not the universal
view of the federal courts.
Alternatively, the attorney for the former spouse relying
on clear and specific language in the divorce decree
awarding the wife an interest in this asset generally
takes no further action. This we believe is an unwise
decision. In the majority of instances post divorce
action on the part of the Husband in clear violation
of the terms of the divorce, absent a QDRO, will be
implemented by the Plan Administrator with the likely
result that the former spouse will be denied an asset
deemed assigned to her at the time of divorce. This
is not to imply fault to the Plan Administrator. The
Plan Administrator is not charged with a responsibility
of monitoring the terms of the divorce. It is unlikely
that the Plan Administrator is in a position to have
knowledge of the inappropriate action of the working
spouse. Recall, the practice is to insert this award
of Life Insurance into the Decree, the problem arises
as a result of failure to incorporate this award into
the Qualified Domestic Relations Order.
The majority federal view is that
the divorce decree is not the controlling instrument. To award the former
spouse an interest in the Husband’s employer
provided life insurance, the practitioner is asked
to consider the following:
-
Craft a Domestic Relations Order specifically awarding
the former spouse (Alternate Payee) a definitely determinable
interest in this insurance or
-
Integrate such award into the Domestic Relations
Order assigning other employee benefits to the Alternate
Payee (for procedural reasons a less favored option).
Absent a Qualified Domestic Relations Order covering
the issue herein presented, future litigation is likely
and the outcome will be determined pursuant
to ERISA, not state law. At the time of divorce, the experienced practitioner
will also conform the husband’s employer life insurance beneficiary
designations to the provisions of the divorce decree and incorporate this
award into the Domestic Relations Order. Once a Qualified Domestic Relations
Order is in place, any subsequent naughty action by the Husband such as
designating his new spouse as the beneficiary will not be an effective
bar to the former spouse, moreover, once the QDRO is in place such change
of beneficiary will not be permitted by the Plan Administrator.
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