Facts: When Husband and Wife divorced, their marital dissolution agreement (“MDA”) said that Wife would receive $450,000 from Husband’s retirement accounts, $90,000 of which was designated as an award of “alimony in solido, which shall be nonmodifiable, nontaxable, and nondeductible.”

After the divorce, the trial court entered a qualified domestic relations order (“QDRO”) that said the funds would be transferred from Husband’s retirement account to Wife’s account where it would become her “sole and exclusive property,” after which Wife could change the investment allocations.

After the funds were transferred to Wife’s account per the QDRO, Wife withdrew $125,000. The plan administrator withheld taxes of $34,687.50, leaving Wife with a net amount of $90,312.50.

Wife sought reimbursement from Husband for the withheld taxes. Husband refused.

The trial court found that Wife knew her award of $90,000 would come from Husband’s retirement account and was advised in advance that her taxes would be withheld from her withdrawal.

The trial court noted that if the parties meant for Husband to pay additional taxes whenever Wife withdrew funds from the retirement account, the parties would have stated this in the MDA or the QDRO.

Thus, the trial court determined that Wife was responsible for the tax liability after the funds were transferred into her account.

Wife appealed.

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

Marital dissolution agreements are contracts subject to the rules governing the construction of contracts.

The purpose of interpreting a written contract is to find and carry out the contracting parties’ intentions.

The universal rule is that a contract must be viewed from beginning to end, and all its terms must pass in review, for one clause may modify, limit, or illuminate another. When an MDA clearly anticipates the entry of a QDRO, their respective provisions may be consistently construed.

The Court agreed with the trial court’s interpretation of the MDA and QDRO:

According to the parties’ MDA, “Husband shall initiate proceedings to draft and file said QDRO(s) within 60 days of the execution of this Agreement.” Clearly, as indicated by this language, the entry of a QDRO was anticipated and, therefore, their respective provisions may be consistently construed in so far as the QDRO does not conflict with the terms of the MDA.

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[T]he trial court entered a QDRO which set forth Husband’s payment to Wife of $450,000, including the $90,000 designated as alimony in solido. According to the QDRO, Husband’s payment to Wife was to be effectuated via a transfer from Husband’s retirement accounts to accounts created for Wife. The entire transfer was nontaxable to Wife. Subsequent to the transfer of funds as contemplated by the parties’ MDA and QDRO, Wife made a withdrawal from her accounts. Specifically, we note that Wife withdrew $125,000 from her retirement accounts and received a net amount of approximately $90,000 due to the tax liability on the withdrawal.

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Wife argued that she was entitled to a lump sum payment of $90,000, not reduced by taxes. Respectfully, we disagree with Wife’s interpretation of both the MDA and the QDRO. Here, Husband did in fact pay Wife the sum of $90,000 per the terms of the MDA. Wife was to receive a total of $450,000 from Husband via his retirement accounts. Included in this total amount was the money representing Wife’s award of alimony in solido. Per the terms of the QDRO, Husband paid Wife a total of $450,000 from his retirement accounts, in compliance with the parties’ MDA. It is not disputed that this was a tax-free transfer to Wife. As we perceive it, Husband complied with his obligations under the MDA in effectuating the payment via the QDRO. Moreover, as to Wife’s issues with the tax liability, we point to the express language of the QDRO which clearly provides that [after the transfer, the funds will be Wife’s] “sole and exclusive property … subject to the terms and limitations of said annuities.” Based on this language, Wife’s own individual accounts are subject to the potential for Wife to incur tax liability on any withdrawals pursuant to the terms and limitations of her accounts. We find the present issue of Wife’s tax liability to be outside the parameters of Husband’s liability as contemplated by the MDA and the QDRO. After Wife received the money owed to her by Husband pursuant to a nontaxable transfer, Wife, withdrawing funds from her own accounts, was taxed on her withdrawal, presumably per the limitations and/or stipulations as contemplated by the QDRO’s language quoted above. We conclude, as did the trial court, that if Husband was to be responsible for the taxes incurred on any future withdrawal Wife made, the parties would have provided for such in the MDA or the QDRO. [W]e find that Husband’s obligation was fulfilled upon his transfer of the funds tax-free from his retirement accounts to Wife. Wife’s actions concerning the funds thereafter are not of consequence to the parties’ MDA.

The trial court’s interpretation of the parties’ MDA and QDRO was affirmed.

George v. Smith-George (Tennessee Court of Appeals, Western Section, January 19, 2022).

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