Interpretation of QDRO and Marital Dissolution Agreement Reversed in DeKalb County Divorce: Macy v. Macy

Facts: When the parties settled their divorce case, they executed a marital dissolution agreement (“MDA”) that provided in relevant part:

As a division of marital property, the husband will pay to the wife the sum of $115,000.00, which shall be paid from his retirement account…. The parties agree that wife shall receive the total sum of one hundred fifteen thousand dollars ($115,000.00) from said 401(k) account, pursuant to the terms of a qualified domestic relations order (QDRO).

Shortly thereafter, a Qualified Domestic Relations Order (“QDRO”) approved by both parties was filed with the trial court. The QDRO provided that Wife “will be required to pay the appropriate federal, state, and local income taxes” on any distribution to her.

When Wife attempted to receive her $115,000 from Husband’s 401(k), she was advised by the plan administrator that she would be responsible for the payment of penalties and taxes on the distribution, which would reduce the $115,000 to approximately $90,000.

Wife asked the trial court to enforce the provision in the MDA requiring the transfer of $115,000 “as a division of marital property.”

The trial court ruled that Wife was to receive $115,000 in order to equalize the division of property. It is further noted that Husband “was merely afforded an opportunity to pay [the equalizing amount] out of his retirement account.” Thus, the trial court ruled that Wife should receive the net payment of $115,000 without any reduction for taxes or penalties.

Husband appealed.

On Appeal: The Court of Appeals reversed the trial court.

Wife argued that the phrase “[a]s a division of marital property” suggests an intent that her $115,000 award not be subject to reduction through taxation. Because the QDRO subjects her award to reduction, a conflict exists, and, therefore, Wife argued the QDRO must be disregarded.

In Tennessee, an MDA incorporated into a final decree of divorce is a contract which is binding on the parties and as such it is subject to the rules governing construction of contracts. When resolving disputes concerning contract interpretation, the court is to ascertain the intention of the parties based upon the usual, natural, and ordinary meaning of the contractual language. This interpretation is not possible where ambiguity exists with regard to material terms; however, ambiguity does not arise in a contract merely because the parties may differ as to interpretations of certain of its provisions. A contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than one.

After reviewing the record, the Court commented:

Although the MDA, itself, did not expressly state that Wife would be responsible for paying taxes on any distribution from Husband’s 401(k) account, the converse — that Wife would not be responsible for the payment of taxes — likewise, was not expressed. Wife has cited no authority, nor have we found any, to support her apparent assertion that an award made as a “division of marital property” is necessarily not subject to reduction through taxation. The MDA did not apportion any tax consequences resulting from distributions from Husband’s retirement account. Instead, it expressly provided that Wife’s award would be made “pursuant to the terms of a qualified domestic relations order (QDRO)” and such QDRO was contemporaneously entered with the Final Judgment to provide the missing details. Pursuant to the unambiguous terms of the QDRO, Wife is “required to pay the appropriate federal, state, and local income taxes” on distributions from Husband’s 401(k) account.

Accordingly, the trial court was reversed.

Macy v. Macy (Tennessee Court of Appeals, Middle Section, February 11, 2014).

Information provided by K.O. Herston: Knoxville, Tennessee Divorce, Matrimonial and Family Law Attorney.

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K.O. Herston is a family-law attorney in Knoxville, Tennessee whose practice is devoted exclusively to family law, including divorce, child custody, child support, alimony, prenuptial agreements, and other aspects of family law.

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