Benefits & ERISA Law

What Makes a Domestic Relation Order a QDRO

By Suzanne Wynn

Just about every ERISA plan document, both defined contribution and defined benefit plans, contain information about Qualified Domestic Relations Orders (QDROs). This is because ERISA generally prevents the distribution, assignment, or garnishment of benefits owed to a participant unless a QDRO allows payment to an alternate payee. Normally, the alternate payee is a former wife or child and the QDRO has been issued by a domestic relations court as part of a divorce.

In a recent legal malpractice case, Mattingly v. Hoge, No. 07-5253 (Jan. 8, 2008), the Sixth Circuit Court of Appeals discussed the difference between a domestic relations order and a qualified domestic relations order, and decided not to decide whether it was legal malpractice for the wife’s divorce attorney to fail to provide a copy of the QDRO to the plan sponsor and the plan administrator.

A quick look at the facts of this case. Husband and wife divorce. At the time of the divorce, the couple have an infant son. Husband was employed by General Electric who provided him with a life insurance benefit as part of GE’s welfare benefit plan. As part of the divorce settlement, the domestic relations court issued an order which required the husband to designate his infant son as the beneficiary to his life insurance benefit under the plan, with the son remaining the primary beneficiary until the son’s 18th birthday. Wife’s divorce attorney failed to provide a copy of this order to either GE, the plan sponsor, or to MetLife, the plan administrator. Eight years later, the husband remarries. Almost three years after remarrying, the husband files a beneficiary designation form with the plan naming his second wife as the primary beneficiary and his son as one of two contingent beneficiaries. Four years later, husband dies and both wives file a claim with the plan for the life insurance benefit.

MetLife, the plan administrator, reviewed the domestic relations order, and determined it qualified as a QDRO. MetLife then denied the second wife’s claim. Second wife sought administrative review of MetLife’s decision, claiming the QDRO was invalid. MetLife filed a complaint for interpleader in federal district court, asking that court to make a determination between the two competing claims. While that action was pending, the wives entered into an agreement to share the insurance proceeds equally between the two of them.

First wife and son then file a legal malpractice action against the attorney who represented her in the original divorce, alleging that her divorce attorney failed in his professional duties because he failed to secure a QDRO. Subsequently, the first wife and son also alleged that her divorce attorney also breached his professional duties to them because he failed to deliver the divorce decree to MetLife, the plan administrator. The district court granted the divorce attorney’s motion for summary judgment, finding that (1) the divorce decree was a valid QDRO; (2) the divorce attorney did not have a duty to notify MetLife of the divorce judgment; and (3) the son’s right to the proceeds of the insurance policy were absolute, and the first wife and son could not claim as damages the amount the first wife relinquished to the second wife in their settlement.

The Sixth Circuit affirmed the granting of summary judgment, finding that the district court was correct that the domestic relations order was a QDRO. In making this determination, the Court took a two-step approach. First, the Court determined that the divorce decree was a domestic relations order under 29 U.S.C. section 1056(d)(3)(B)(ii), stating:

The term “domestic relations order” means any judgment, decree, or other order (including approval of a property settlement agreement) which (I) relates to the provisions of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a participant, and (II) is made pursuant to a State domestic relations law (including a community property law).

Then the Court determined that the domestic relations order was a QDRO. The Court made this determination, stating that not all domestic relations orders qualify as QDROs. For a domestic relations order to be considered a QDRO, it must satisfy the following additional criteria:

1. the order clearly specifies the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order;

2. the order clearly specifies the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee, or the manner in which such amount or percentage is to be determined;

3. the order clearly specifies the number of payments or period to which such order applies; and

4. the order clearly specifies each plan to which such order applies.

Finally, the Court addressed whether the divorce attorney was professionally negligent because he failed to send a copy of the divorce decree to MetLife. The Court declined to reach the merits of this claim, stating that because it had not been pleaded by the first wife and son. The Court noted that generally the Court refuses to consider an argument raised for the first time on appeal, leaving the question of whether a divorce attorney is professionally negligent if they fail to provide a copy of the QDRO to the plan sponsor and the plan administrator to another decision on another day.

One other open question is whether the son will now be litigating against his mother and second wife for recovery of the life insurance benefit which was suppose to belong to the son under the QDRO, or whether the son will be filing a claim with MetLife for those benefits.

Technorati Tags: Pension Protection Act, ppa, QDRO, domestic relations order, Hoge, Mattingly, divorce, malpractice, ERISA

Full post as published by Pension Protection Act Blog on January 11, 2008 (boomark / email).