by Leslie A. Kulick¹

A. Introduction

Qualified domestic relations orders, called QDROs, were created by the United States Congress in revisions to the Employees Retirement Security Act of 1974 (ERISA), known as the Retirement Equity Act, in 1984. QDROs are state court orders issued in domestic relations cases that give retirement benefits to someone other than the plan participant. They are generally used by divorcing spouses as a means of dividing marital retirement plan property pursuant to a settlement agreement. As such, QDROs are widely used but rarely contested. Therefore, even though QDROs have been recognized for almost 20 years, relatively little case law exists that establishes the substantive parameters these state court orders need to meet in order to be legally recognized as qualified under the terms of the federal statute.

During the early years following their legislative enactment, cases focusing on QDROs dealt mostly with whether the procedural requirements set out in 29 U.S.C. § 1056 were satisfied within the state court order. These cases were often brought on behalf of or against the retirement plan administrators to require recognition of an allegedly defective QDRO, but cases were rarely brought to challenge the substantive propriety of the state court domestic order. As state courts increasingly use QDROs routinely for satisfaction of past due support obligations from otherwise non-assignable retirement plan funds, more legal challenges to QDROs can be expected and the limitations on QDROs will be further defined. This article will discuss the Congressional intent behind the establishment of QDROs and the limitations that should be recognized in their use today.

B. The Anti-Alienation Provisions of ERISA and Its Justification

The primary purpose of ERISA is to protect the rights of employees to receive their retirement benefits.² In passing ERISA, Congress intended to ensure that retirement money would be available to retirement plan participants and their beneficiaries upon retirement.³ In order to accomplish this purpose, Congress requires that all ERISA qualified plans have anti-alienation provisions.⁴ Congress intended retirement interests to be largely non-attachable by creditors.⁵ The "'spendthrift' provisions" of ERISA were designed to ensure that the employee's accrued benefits are actually available for retirement purposes by "prevent[ing] unwise alienation or assignment."⁶ The benefits that have accrued within a retirement plan will even be protected from alienation for equitable purposes. The broad social policy expressed by Congress through ERISA's expansive anti-alienation scheme "takes precedence over the [court's] desire to do [effectuate] equity between [specific] parties."⁷ ERISA's anti-alienation clause is mandatory and contains very few exceptions. Those exceptions are not subject to judicial expansion.⁸ The anti-assignment provisions in ERISA are vigorously enforced, and exceptions to it are narrowly construed.⁹

C. The QDRO Exception To ERISA's Anti-Alienation Requirements

One of the very few exceptions to ERISA's anti-alienation format was provided by Congress in the 1984 amendments to ERISA known as the Retirement Equity Act, and codified as 29 U.S.C. § 1056(d)(3)(A). This exception established qualified domestic relations orders, called QDROs. The section distinguishes between non-qualified domestic relations orders, which are not exempt from anti-alienation under ERISA, and qualified domestic relations orders, which are exempt. However, beyond the simple procedural requirements listed in 29 U.S.C. § 1056(d)(3)(C)-(D), the statute does not mention specific substantive distinctions between qualified and non-qualified domestic orders. This is because Congress did not want retirement plan administrators to be tied up in endless domestic relations litigation.¹⁰ Instead, Congress used general language in 29 U.S.C. § 1056(d)(3)(B)(i)(I) to provide that alternate payees must have legitimate rights to have benefits assigned to them. Thereafter, plan administrators have no further liability for determining the propriety of a domestic order, can sequester or interplead the disputed amount, and can leave substantive disputes for the court to determine. However, the statute clearly provides an opportunity for the plan participant to challenge whether the domestic order is a QDRO by petitioning the federal court to determine if a domestic order is one that should be considered qualified under ERISA in 29 U.S.C. § 1132.¹¹

D. QDRO Case Law

The United States Supreme Court has recognized that where the "ERISA [statute] is silent on an issue, [the] federal court[s] must fashion federal common law rules to govern ERISA suits."¹² These federal common law rules will be designed to effectuate the statutory purpose and underlying federal policies of the statutory enactment.¹³ Thus, in fashioning federal common law rules to determine when a domestic relations order is a valid QDRO, the federal courts must design the exception to be narrow and will give effect to the broad anti-alienation purpose of the underlying statute.

Congress created the QRDO exception to narrowly focus on the protection of divorced spouses and their interests in retirement funds earned during marriage.¹⁴ The QRDO provisions were designed to protect those persons who, as a result of divorce, might not receive the income they anticipated having available to them during their retirement. Those provisions recognize the "community property interests" in retirement plans that belong to non-participant spouses and dependents.¹⁵ QRDOs were meant to be a narrow exception in a very extensive anti-alienation statutory scheme. The exception was never meant to be so broad as to defeat the spendthrift provisions of ERISA entirely in the case of divorced spouses. Thus, several courts have noted that under the Retirement Equity Act, QRDOs were instituted as a means of recognizing and dividing spousal ownership rights in retirement benefits that were earned during the marriage.¹⁶

QDROs are commonly used in settlement agreements accompanying divorces as a means of dividing retirement benefit rights acquired during the marriage. QRDOs can also be used to satisfy alimony and support arrearages. However, where the rights to the benefits were not earned during the marriage, alimony arrearages should not be collectable through a QDRO. Even in the case of arrearages, courts should and will look at the beneficial interest in the pension that was acquired during the marriage and only assign the retirement benefits under a QDRO to the extent of the value of the retirement accounts at the time of the dissolution of the marriage.¹⁷ In cases where the retirement rights were those exclusively awarded to the other spouse (where a final judgment extinguished the joint property rights), or where the retirement plan did not exist at the time of the divorce, courts have been unwilling to issue QDROs, holding that without a property right in the retirement plan, the ex-spouse stands in the position of any ordinary judgment creditor.¹⁸ The courts in such cases will not issue post divorce QRDOs because that would "create a post-judgment interest in an individual [ex-spouse's] property," although where the waiver of the retirement interest in a divorce settlement was dependent upon another payment never made, a QDRO will be issued.¹⁹ Allowing QDROs in instances where no marital property right exists would defeat the intent of Congress that ERISA protect current dependents of plan participants. Permitting QDROs under these circumstances would leave second spouses bereft of retirement benefits earned during their marriages that they justifiably depended upon.²⁰ Furthermore, even in the case where a retirement plan was a marital asset that could be used to satisfy alimony arrearages, if the plan benefits vest in another beneficiary prior to the issuance of the domestic relations order, that order will not be a valid QRDO because the benefit no longer is payable to the plan participant.²¹

A distinction should be made between issues of alimony arrearages and issues of child support arrearages. Some courts use general language and place the two issues together.²² However, while marriages are dissolved by divorce, only age terminates child support obligations. Thus, child support arrearages that accrue during a child's minority should be a charge against the parent's retirement benefit rights regardless of the date of divorce, and only rights to benefits that accrue after the child reaches the age of majority should be exempt from attachment for arrearages. Minor children have a right to support from their parents regardless of whether the parents were ever married, and this support right is enforceable through a QRDO on a parent's retirement plan.²³

E. Conclusion

State court judges are accustomed to using all means at their disposal to enforce their orders, whether by legal or equitable means. This is especially true in cases involving divorce, custody, and support issues where the parties are emotionally invested in the outcome and some parties can become viewed by the court as recalcitrant. Since QDROs are designed to be issued by state court judges as part of domestic legal disputes, some judges have come to view their power to designate and order a QDRO to be unlimited.²⁴ However, QDROs were not meant by Congress to be a tool to so dramatically increase state court equitable powers. In fact, in drafting ERISA, Congress did not intend to permit even equitable considerations to breach the anti-alienation provisions of the statute.²⁵ Thus, state court domestic orders should also not be permitted to make the anti-alienation clause of the statute nonexistent, even when the attempted QDRO follows the requisite format. Too broad a reading of the Retirement Equity Act exception for QDROs will defeat the purpose of the ERISA. That purpose is to make sure that retirement benefits are available to workers and their current dependents upon their retirement. Rather, the substance of the state domestic order must be subject to review to see if a QDRO should be permitted, taking into account Congressional intent in drafting ERISA. The QDRO was designed as a remedial measure to recognize the investment a spouse makes in the other spouse's retirement benefits during the marriage.

Congress wanted to make sure that divorce would not deprive a retirement plan participant's dependent of anticipated and necessary retirement benefits merely because the marriage was dissolved. The QRDO is meant to ensure that both parties to a marriage receive their property rights in the retirement benefits that accrued during the marriage. ERISA qualified retirement plans were not meant to be a deep pocket of readily available funds for use by state courts to right all domestic support wrongs. In the case where the spouse was not a plan participant during the marriage, or where the settlement split the property, leaving each party with their individual property, a domestic order should not be considered a qualified one under ERISA. In such cases where the retirement benefits are not attachable, the ex-spouse is not without rights. Rather, the former spouse would have the same rights as an ordinary judgment creditor who gets no alienation exception under ERISA. As the Supreme Court noted in Guidry v. Sheet Metal Workers Nat. Pension Fund, Congress made a considered judgment to restrict alienation of pensions in drafting ERISA. This provision intentionally hinders the collection of lawful debts that can only be defended as a means of effectuating certain broad social policies and remedial goals over a desire for equity. The courts cannot institute general equity exceptions without eviscerating the statutory protection.²⁶ Likewise, overbroad and uncontrolled QDRO exceptions can also eviscerate the intended ERISA anti-alienation protection.

Footnotes

¹ Leslie A. Kulick received her J.D. from State University of New York at Buffalo School of Law, Amherst, New York, where she graduated cum laude. She is admitted to practice before the Kansas Supreme Court, the U.S. District Court for the District of Kansas, the Tenth Circuit Court of Appeals, the Supreme Court of Missouri, and the U.S. District Court for the Western District of Missouri. Ms. Kulick is of counsel at the firm of Gaar Buxbaum & Roth in Overland Park, Kansas.

² 29 U.S.C. §§ 1001, et seq.

³ 29 U.S.C. § 1001.

⁴ 29 U.S.C. § 1056(d)(1)-(d)(3)(A).

⁵ Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365 (1990).

⁶ Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 278 (7th Cir. 1990); H.R.Rep. No. 93-807, at 145 (1974).

⁷ 493 U.S. at 366.

⁸ Smith v. Estate of Smith, 248 F. Supp.2d 348 (D. N.J. 2003), Guidry, 493 U.S. 365.

⁹ Boggs v. Boggs, 520 U.S. 833 (1997), Patterson v. Shumate, 504 U.S. 753 (1992).

¹⁰ 248 F. Supp.2d at 355.

¹¹ 29 U.S.C. § 1132(a)(1)(B)(e).

¹² Fox Valley, 897 F.2d at 281.

¹³ Id.

¹⁴ Boggs at 846.

¹⁵ Boggs at 848.

¹⁶ AT&T Management Pension Plan v. Tucker, 902 F. Supp. 1168 (D. Cal 1995); In re Abbata, 157 Bankr. 201 (N.D. N.Y. 1993).

¹⁷ Marriage of Thomas, 789 N.E.2d 821 (Ill. App. Ct. 2003).

¹⁸ DeSantis v. DeSantis, 714 So.2d 637 (Fla.Dist. Ct. App. 1998); Hoy v. Hoy, 510 S.E.2d 253 (Va. Ct. App. 1999).

¹⁹ Id. at 638.

²⁰ Marriage of Thomas at 821.

²¹ Hopkins v. AT&T Global Info. Solutions, 105 F.3d 153 (4th Cir. 1997).

²² Marriage of Thomas at 821.

²³ Trustees of the Dir. Guild of Am.-Producer Pension Benefits Planv. Tise, 255 F.3d 661 (9th Cir. 2001).

²⁴ For this reason, most of the cases cited in this article that have imposed limits on QDROs have some negative citation histories, although none have been reversed. Furthermore, the Missouri case of Baird v Baird, 843 S.W.2d 388 (Mo. App. E.D. 1992), reached a result opposite to the decision in Hoy v. Hoy, 510 S.E.2d 253 (Va. Ct. App. 1999).

²⁵ Guidry, 493 U.S. at 370.

²⁶ Id.