Qualified Domestic Relations Orders and Pension Evaluations
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Employee Welfare Plans
Life Insurance
Qualified Domestic Relations Orders

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:

1.Craft a Domestic Relations Order specifically awarding the former spouse (Alternate Payee) a definitely determinable interest in this insurance or
2.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.