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Children, not wife, get dad’s retirement

RA father’s retirement account will go to his two children, and not to his surviving spouse, because their right to the money vested when the father and mother divorced, the Virginia Court of Appeals said on Jan. 28.

When Sandra and David Griffin divorced in 1998, the final divorce decree incorporated the Griffins’ property settlement agreement that said the parties agreed to name the children of the marriage “as co-beneficiaries under all 401K Plans and other such plans” to be distributed upon the death of either parent.

The father followed up in 2002 by naming the children, born in 1987 and 1992, as co-beneficiaries on his Salaried Savings Plan, a defined contribution plan with Dominion Virginia Power. But after David married Kimberly Cowser-Griffin, he named her as the beneficiary for his SSP in 2008, with his children as contingent beneficiaries.

Neither party had applied for a Qualified Domestic Relations Order or notified the Dominion plan administrator of an alternate payee for the SSP. The father died in May 2012, while still employed with Dominion. Several months later, the mother sent a draft QDRO to Dominion. The plan administrator said it could not honor the QDRO but would put the funds on hold while the parties went to court.

After reinstating the divorce case on the docket, Sussex County Circuit Judge W. Allen Sharrett said that, under federal case law, the SSP vested entirely in the designated beneficiary – the father’s widow – at the time of the father’s death.

Wrong call, according to the Court of Appeals, in a split panel decision. The trial court erred when it denied entry of the QDRO proffered by the mother.

The father had clearly breached the terms of the parties’ PSA when he named his new wife as the beneficiary of the SSP, wrote Judge Robert J. Humphreys. The circuit court’s only remedy for the breach was to issue a QDRO in order to enforce the PSA.
“In this case, it does not matter that the final decree and PSA were not QDROs because it is permissible under both federal and state law that an order issued after and revising these domestic relations orders can become a QDRO,” Humphreys wrote in Griffin v. Griffin (VLW 014-7-015)

The proposed QDRO did not fail solely because it was not entered prior to the father’s death, nor did it matter that the plan was not on notice of an alternate payee, according to Humphreys.

The right of the children to the benefits of their father’s 401(k) “vested when the parties agreed to ‘name the children of the marriage as co-beneficiaries under all 401(k) plans” Humphreys concluded. The QDRO is “simply an administrative mechanism to enforce these rights that accrue under state law, and federal law has not overridden this mechanism,” the majority concluded.

Split over federal case law

Judge Glen A. Huff dissented.

Vesting “is the threshold question to whether a posthumous QDRO would be appropriate in this case because if in fact Cowser-Griffin’s rights vested at Griffin’s death, then a posthumous QDRO would divest her of the benefits to which she was entitled,”  Huff said.

On this first-impression question, the court should apply federal precedent providing that a surviving spouse’s benefits vest at the time of the plan participant’s death, the dissent said.

A line of recent U.S. Supreme Court cases supports the dissent’s view, according to Richmond lawyer Leslie Shaner. Under the “plan documents rule” at issue in recent high-court cases, the beneficiary designation in the plan administrator’s file controls, regardless of what any property settlement agreement says, Shaner said.

Chesterfield lawyer Lawrence D. Diehl also lined up behind the dissent’s view. “Here, the original order, the final decree really said nothing,” Diehl said. It was not a DRO that could be amended, he said.

Diehl also took issue with the majority’s reference to Va. Code § 20-107.3(K)(4) as authority for allowing the DRO do-over. Diehl said he helped draft that statute, which was not meant to allow the creation of something new, but to protect lawyers from malpractice claims that might arise from a need to change existing QDROs when companies change their plans.

It’s never a good idea to wait to do the QDRO, but Virginia case law supports allowing the posthumous QDRO in the Griffin case, according to Alexandria lawyer Carolyn M. Grimes. And a QDRO can be used to direct benefits to a party’s children, even though they do not really have any rights under the plan.

But Grimes said that if a federal court looked at a case like Griffin, “I suspect they would go the other way” to avoid opening the door to more challenges to plan administrators’ reliance on plan documents for benefits payouts.

The Griffin decision is the court “doing the right thing,” said Virginia Beach lawyer J. Roger Griffin Jr., who represented the wife on appeal.

He said the appellate court had “tipped its hand” on the likely result in Griffin when it released its unpublished decision last year in Forest v. Forest (VLW 013-7-074(UP)).

In Forest, the Court of Appeals reversed a trial court’s refusal to modify a final divorce decree to equalize the parties’ retirement accounts by substituting another of the husband’s retirement accounts after he secretly depleted the named account and committed suicide. The appellate court ordered the trial court to determine whether federal law allowed the requested QDRO for the husband’s other retirement account.

On remand, the trial court had no problem doing the delayed QDRO, according to McLean lawyer Joseph A. Condo, who represented the wife in Forest. Condo said the trial court reasoned that if the court adopted the executor’s position in the case, it would be encouraging people to violate their agreements.

“The takeaway on the Griffin case is: Everybody needs to get their QDROs done,” Griffin said.

Williamsburg lawyers W. Hunter Old and Christopher T. Page, who represented the husband’s estate, could not be reached for comment.

VLW 014-7-015

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