Facts: Husband and Wife divorced in June 1995 after 14 years of marriage. The parties entered into a marital dissolution agreement giving Wife one-half the value of Husband’s retirement plan earned during the marriage. Specifically, the Final Decree of Divorce provides “[t]hat . . . the General Motors retirement plan value earned during the marriage be divided equally between the parties.” In February 1997, 20 months after the Final Decree was entered, the parties agreed on a Qualified Domestic Relations Order (“QDRO”) addressing the Husband’s GM pension plan. The QDRO stated Wife was entitled to 50% of the marital portion of Husband’s monthly benefit, including any early retirement subsidy, cost-of-living adjustments, or other post-retirement economic improvements. In other words, the language of the 1997 QDRO was inconsistent with that of the 1995 Final Decree.
In August 2009, Husband retired from General Motors after over 30 years of service, the parties having been married for 169 of Husband’s 366 months of service. Shortly thereafter, Husband sought to re-open the long-dormant case and amend the QDRO, claiming the QDRO granted Wife benefits not provided in the Final Decree. Specifically, Husband contended Wife was not entitled to any early retirement supplements or post-retirement increases, and Wife was not entitled to survivor benefits in the event he predeceased her.
After a hearing, the trial court the trial court granted summary judgment to Wife on two issues, finding she was entitled to a portion of the post-divorce early retirement supplement and the post-retirement increases. Regarding the survivor benefits, the trial court granted summary judgment to Husband, finding Wife was not entitled to a portion of the the survivor benefits. This appeal followed.
On Appeal: The Court affirmed the trial court in all respects.
QDRO inconsistent with Final Decree. The Court discusses precedent holding that a QDRO entered after a Final Decree is “unenforceable to the extent it materially and substantively modifies the division of marital property as expressed in the Final Decree of Divorce.” A Final Decree that incorporates the parties’ marital dissolution agreement is “the controlling document” regarding division of property. Once the Final Decree becomes a final, non-appealable judgment, it is no longer subject to modification. When the Final Decree incorporates a contemporaneous QDRO, however, the contemporaneous QDRO must be treated as part of the Final Decree. See, e.g., Pruitt v. Pruitt, 293 S.W.3d 537 (Tenn. Ct. App. 2008), perm. app. denied (Tenn. 2009).
Early retirement supplement and post-retirement increases. The Court begins by noting the inherent difficulty in valuing unvested retirement benefits that accrued during the marriage. When the vesting or maturation is uncertain or when the retirement benefit is the parties’ greatest or only economic asset, the Court says the “deferred distribution method” of valuation is preferable. Under this method, the court determines the formula for dividing the monthly benefit at the time of the decree, although the benefit distribution does not occur until the benefits become payable.
The marital property interest is often expressed as a fraction or a percentage of the employee spouse’s monthly benefit. The percentage may be derived by dividing the number of months of the marriage during which the benefits accrued by the total number of months during which the retirement benefits accumulate before being paid. [NB: This is referred to as the “time rule formula.”]
One advantage to the deferred distribution method is that it allows an equitable division without requiring present payment for a benefit not realized and potentially never obtained. Another advantage to the approach is that it equally apportions any risk of forfeiture. While a disadvantage may be that the approach requires a trial court to retain jurisdiction to oversee the payment, the entry of an order awarding a certain percentage of the benefits at the time of payment should lessen the administrative burden of the court. Courts routinely retain jurisdiction to supervise payments of alimony and child support and have, in the past, successfully divided vested pension rights by awarding each spouse a share. An administrative burden should not excuse an inequitable distribution of marital property.
When using the deferred distribution method, post-divorce increases in pension benefits are classified as marital property unless the nonemployee spouse is paid the net present value of his or her share of the pension at the time of divorce. The reasoning is as follows:
Typically, there is commingling of effort undertaken during the marriage and after the marriage which together enhance the value of the future benefit. The employee spouse’s ability to enhance the future benefit after the marriage frequently builds on foundation work and efforts undertaken during the marriage.
Husband argued Wife was only entitled to half of the benefit earned during the marriage based on the language of the Final Decree. The Court found, however, that the early retirement supplement and post-retirement increase benefits were not earned by Husband after the marriage. In fact, the benefits were granted to any employee with 30.6 years of credited service. Without the 14 years of service during the marriage, Husband would not have been eligible for the early retirement supplement and post-retirement increases, both of which were very significant. Accordingly, the Court concluded those benefits were marital property such that Wife’s portion included the early retirement supplement and post-retirement increases.
Survivor benefit. Recall the Final Decree provides that Husband’s “GM retirement plan value earned during the marriage be divided equally between the parties.” In the QDRO that came some 20 months later, Wife was designated as the surviving spouse for purposes of establishing her entitlement to the Qualified Preretirement Survivor Annuity (QPSA). Wife argued the “surviving spouse” designation in the QDRO demonstrated Husband’s agreement that she receive survivor benefits. Husband argued Wife was not entitled to the benefits, the Final Decree being silent on the subject. The trial court, relying on the language in the Final Decree instead of the subsequent QDRO, found the survivorship option was a “completely separate aspect of the calculation of [Husband’s] retirement benefit,” that the survivorship option did not “naturally” flow from the use of the time rule formula/deferred distribution method, and that it was not negotiated for or bargained for by the parties.
Thus, the question presented to the Court of Appeals is whether the survivor benefit was separate and distinct from the pension plan or whether it was an indivisible part of a benefit earned during the marriage.
Noting this to be a case of first impression in Tennessee, the Court said:
We are persuaded . . . that the survivor annuity is a separate and distinct benefit from the pension plan benefits. The time rule formula used in the deferred distribution method is incompatible with the survivor annuity. As would be the case here, awarding Wife the survivor annuity has the effect of reducing Husband’s pension benefit. Further, because this is considered a separate benefit from a pension benefit, it would be ill advised to allow a mere implication to serve as the justification to award this separate benefit to Wife, especially because, under federal law, it has the irrevocable effect of disqualifying a subsequent spouse, who may be the ultimate surviving spouse, from being eligible for any portion of this benefit.
Based upon this reasoning and the absence of any reference to the survivor benefit in the Final Decree, the Court held Wife was not entitled to the survivor benefit, the “mere implication” from the subsequent, non-contemporaneous QDRO notwithstanding.
A final plea from the Court of Appeals to all Tennessee divorce attorneys. Because federal law (ERISA) does not require that QDROs be part of the final decree of divorce, attorneys sometimes delay entering a QDRO until well after the parties are divorced, as happened here. This creates a false sense of finality and generates questions regarding the appealability of divorce judgments involving pension issues. In the opinion of one commentator, “[d]rafting a qualified domestic relations order concurrently with the divorce is essential.” Gary Shulman, QDROs-The Ticking Time Bomb, 23 Fam. Adv. 26, 26 (Spring, 2001). The Court’s opinion concludes with this plea to Tennessee divorce lawyers:
[W]e urge attorneys drafting Final Decrees of Divorce in which pension benefits and survivor benefits are at issue, to . . . draft the QDRO contemporaneously with, and to read symmetrically with, the pertinent language in the Final Decree of Divorce so that issues such as these do not arise.
Sounds like good advice to me.
Information provided by K.O. Herston, Tennessee Divorce Lawyer.