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A survey of significant QDRO case law in Florida.

The Employee Retirement Income Security Act of 1974 (ERISA) was promulgated in an effort to, among other things: 1) ensure minimum standards for the funding of pensions, 2) curb the ability of employers to alienate their employees' retirement monies, and 3) curb the ability of employees and third-party creditors to access an employee's pension. (1) In creating ERISA, the legislature may have overcompensated with its initial incarnation; that is to say, in creating the anti-alienation provisions of ERISA, the plain language of ERISA made it extremely difficult for former spouses and other dependants to access an employee's ERISA-qualified retirement account. In effect, this difficulty provided employees with a potential windfall in family law cases because they could either defer income into ERISA-protected accounts, or they could defer retiring in an effort to avoid collection. Further, courts could not necessarily order direct payment from the plan to the nonemployee former spouse. (2)

By virtue of these domestic relations law issues, judges issued rulings that attempted to balance the needs of the employees' former spouses and children with qualified retirement accounts against the plain language of ERISA. (3)

In 1984, Congress amended ERISA with the Retirement Equity Act of 1984 (REAct). (4) The passage of REAct included many innovations in the law, including the creation of the qualified domestic relations order, or "QDRO." (5) Pursuant to ERISA, "[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated." (6) The primary impact of REAct in reversing the windfall effect of ERISA's anti-alienation provisions is contained in the following language:

Paragraph (1) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that paragraph (1) shall not apply if the order is determined to be a qualified domestic relations order. Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order. (7)

QDROs have gone from an obscure legal mechanism to a relatively common, often misunderstood, tool in domestic relations law. This article is designed to survey the evolution of the domestic relations law in the state of Florida related to the QDRO.

The 1980s

The term "QDRO" was not used in any Florida Supreme Court or appellate-level case during the entirety of the 1980s. Presumably, the lack of usage had to do with the relative obscurity of qualified domestic relations orders. The courts were, however, tackling issues related to retirement accounts that would later affect the use of QDROs. More specifically, the courts were wrestling with how to value and properly determine the marital portion of retirement accounts. As of the 1980s, the traditional pension plan was far more common than the 401(k), which was only just created in 1981. Pensions are notoriously more complicated than 401(k)s in terms of valuation, and, thus, these cases laid an important groundwork for later cases dealing with valuation of QDROs.

In Diffenderfer v. Diffenderfer, 491 So. 2d 265 (Fla. 1986), the Florida Supreme Court established that a vested and matured retirement account was not merely a source of income for the purposes of establishing support, but also a piece of marital property that must be divided. (8) The court further held that:

while reduction to present value may often best ensure an equitable distribution of property, we cannot say it would do so in every case. As in calculating an award of alimony or maintenance, "[t]he court may consider any other factor necessary to do equity and justice between the parties." [section] 61.08, Fla. Stat. (1985). The wealth of the parties, their future prospects, the duration of the marriage and each party's contribution to the marriage, among other factors, will bear on the question. (9)

In Reyher v. Reyher, 495 So. 2d 797 (Fla. 2d DCA 1986), the Second District reiterated the Supreme Court's point in Diffenderfer that the marital portion of a pension is divisible in equitable distribution of property and the nonmarital portion is not. (10) The court also noted, however, that the nonmarital portion of a pension may be considered in a determination of the appropriate award of alimony. (11)

Trant v. Trant, 545 So. 2d 428 (Fla. 2d DCA 1989) narrowed the issue of valuation. Specifically, family court attorneys dealing with pensions too frequently failed to understand the valuation process, even though the valuation of a pension could have a dramatic impact on the parties' equitable distribution scheme. In the Trant case, the husband participated in the Florida Retirement System and was still actively acquiring pension benefits as a police officer at the time the court was considering equitable distribution of the pension. (12) The Second District Court of Appeal provided an invaluable instruction for understanding pension valuation. The court stated:

Two principal methods have evolved whereby courts distribute and divide pensions: the "immediate offset" method and the "deferred distribution" method. Under the immediate offset method, Janice Trant [Wife] would receive the present value of her interest in Richard Trant's [Husband's] pension either in cash or as an offset in the husband's share of marital property. The immediate offset method requires complicated calculations and will generally require expert testimony.... The deferred distribution method is much simpler to calculate. Under this approach, the court determines what the employee's benefit would be if he retired on the date of the final hearing without any early retirement penalty. The court then multiplies this dollar amount by the percentage to which the other spouse is entitled. This method yields a fixed dollar amount which the awarded spouse receives from each of the employee's pension payments after retirement. Although it prolongs contact between the parties and raises the possibility of enforcement problems, this approach equally distributes the risk of forfeiture between the parties. (13)

Thus, the Trant trial court did not conclusively establish the valuation method to be followed with respect to pensions, but the appellate court explained the valuation process and left the determination of which method to use at the discretion of the parties' and/or the trial courts. (14)

The 1990s

In 1992, the Second District Court of Appeal considered retirement accounts in the context of small businesses in Shannon v. Shumate, 598 So. 2d 308 (Fla. 2d DCA 1992). Small business owners frequently set up their own ERISA-qualified retirement accounts, wherein the employer is also the employee and the plan administrator. This type of retirement plan leaves room for the employee-spouse to delay a distribution of the retirement account.

In Shannon, the husband was the retirement plan's administrator of the family business. (15) The trial court entered a QDRO in December 1988, and more than 14 months passed before the husband distributed the wife's share of the retirement account. The husband claimed the delay was due to an IRD audit requiring him, as the plan administrator, to make the plan compliant with various tax laws. (16) The trial court required Mr. Shumate to pay interest on the monies owed, but limited the interest period to the point at which it became administratively feasible for him to make payment. (17) This practice prohibited the ability of a small business owner to delay payment pursuant to a qualified domestic relations order without repercussions.

By the 1990s, qualified domestic relations orders were becoming relatively more common. However, attorneys and trial judges still did not fully understand QDROs in terms of their use. In Board of Pension Trustees of the City General Employees Pension Plan, City of Jacksonville v. Vizcaino, 635 So. 2d 1012 (Fla. 1st DCA 1994), the husband retired from the Jacksonville Electric Authority with a municipal pension as a former city employee. The parties agreed to equitably divide his pension as part of a property settlement agreement and the trial court subsequently entered a QDRO. The wife filed a motion to enforce the QDRO because the city attorney refused to accept the QDRO, which ordered the former husband to provide her with a percentage of his retirement pension benefits. The city attorney argued that the trial court had no authority to enter the QDRO. (18) The trial court agreed with the wife and sought to have the QDRO act as an income deduction order against the municipal pension to enforce the property settlement. (19) The First District Court of Appeal reversed the lower court and held that municipal pensions are not subject to ERISA, "although the qualified domestic relations order would have been enforceable as an income deduction order under section 61.1301 had it been for collection of either alimony or child support, it cannot be used to force direct payment to Anna of a portion of Jose's pension benefits in order to achieve an equitable distribution of the parties' marital assets." (20)

Vizcaino is an important case because it stands for the proposition that a QDRO is not an order that a party can simply use to obtain money from any retirement account. Rather, different retirement plans have different rules, depending on a multitude of factors. Perhaps most importantly, the QDRO is a legal mechanism created by ERISA and intended only to be used toward ERISA-based retirement plans. If a party's retirement account is not covered by ERISA, the court does not have the jurisdiction to divide it; thus, other distribution schemes must be explored. Case law govern ing retirement accounts in the 1990s also established that QDROs may be used for more than simply achieving equitable distribution.

In Hayden v. Hayden, 662 So. 2d 713 (Fla. 4th DCA 1995), the court held that a qualified domestic relations order does not necessarily need to be part of a judgment in an underlying action, but can instead be an independent enforcement mechanism for alimony or child support. (21) In Adkins v. Adkins, 675 So. 2d 199 (Fla. 1st DCA 1996), the issue was whether the qualified domestic relations order entered was in violation of the bankruptcy code. In their dissolution proceedings, the parties agreed that the husband would receive 50 percent of the wife's profit sharing plan. Their settlement agreement also contained a provision that each party intended to file Ch. 7 bankruptcy. The wife subsequently filed her bankruptcy action and listed the husband as an unsecured creditor. She argued that the monies she owed him as part of their settlement agreement was a debt dischargeable in her bankruptcy action. The court found that a QDRO may be entered against a party's retirement account to enforce equitable distribution despite the fact that the employee-former spouse has filed for bankruptcy because the monies from the filing spouse were the sole and separate property of the receiving spouse. (22)

In 1997, the Supreme Court of Florida delivered what is probably the most famous case dealing with retirement accounts in Florida family law: Boyett v. Boyett, 703 So. 2d 451 (Fla. 1997). In Boyett, the parties were married for nearly 33 years. The husband maintained employment with the same employer three years prior to the marriage and during the entirety of the marriage. He accrued his pension benefits for the entirety of the 36-year period. (23) He wasn't set to retire until more than eight years after the filing of his petition for dissolution of marriage. (24)

The trial court, utilizing a deferred distribution method of valuation, awarded the wife a portion of the husband's pension that had yet to accrue during the next eight years. The appellate court found this ruling to be in error because the court cannot award benefits accrued after the date of dissolution to the nonemployee spouse. (25) This holding does not eliminate the possibility of awarding such amounts as support, to purge a contempt action, or for the purpose of awarding attorneys' fees. (26)

In Kay v. Kay, 723 So. 2d 366 (Fla. 3d DCA 1998), the Third District Court of Appeal addressed the issue of an attorneys' fees award from one party's retirement plan after the entry of a final judgment of dissolution of marriage. (27) The Third District Court of Appeal reversed the decision of the trial court, and held that:

Although the trial court found that fees of half of what the wife owed her attorney should be awarded, it also held that it could not assess that amount against the husband because he had no present ability to pay from any liquid asset and, it opined, there was no authority to make such an award out of the substantial pension he was due as a retired county court judge. This was incorrect. There is no reason that fees may not be awarded from the capital assets of the party to be charged or taken from the amounts otherwise distributed to that party in equitable distribution or by making or adjusting a qualified domestic relations order (QDRO) to reach his interest in the pension. Particularly in the light of the husband's far superior financial situation based on his illiquid interest in the pension fund, and the trial court's correct finding that the husband had improperly prolonged and complicated the litigation, for which fees may be awarded even without regard to the ability to pay.... (28)

Thus, a trial court, in fact, has full discretion to award fees from a party's qualified retirement account as part of a family law case.

2000 to the Present

By 2000, the case law in Florida related to QDROs evolved significantly, considering that as of 1990, the acronym "QDRO" had yet to be used in a single state appellate court decision. The cases since 2000 set out some fairly detailed guidelines for family law practitioners and judges and deal with some of the micro-issues related to retirement accounts. For example, in Kadanec v. Kadanec, 765 So. 2d 884, 886 (Fla. 2d DCA 2000), the Second District Court of Appeal held that a loan against a 401(k) should not be considered marital if the proceeds of such a loan were used solely for the benefit of the party incurring the loan. In Long v. Long, 774 So. 2d 745, 746 (Fla. 3d DCA 2000) the Third District Court of Appeal held that an alternate payee cannot impose the tax liability associated with a qualified domestic relations order on the participant.

In Jahnke v. Jahnke, 804 So. 2d 513 (Fla. 3d DCA 2001), the Third District Court of Appeal addressed whether a final judgment must specifically reserve jurisdiction for the entry of a qualified domestic relations order or whether a reservation of jurisdiction to enforce the terms of the final judgment and underlying settlement agreement is sufficient. According to the Third District Court of Appeal, a final judgment need not specifically reserve jurisdiction to enter a qualified domestic relations order. (29) Rather, the trial court need only reserve jurisdiction for the purposes of enforcement and implementation of the terms of the final judgment. (30)

In the last decade, the two most important cases with respect to QDROs are Blaine v. Blaine, 872 So. 2d 383 (Fla. 4th DCA 2004), and Padot v. Padot, 891 So. 2d 1079 (Fla. 2d DCA 2004). In Blaine, a final judgment awarded the wife a portion of the husband's pension, which did not make reference to any future economic benefits, such as cost-of-living adjustments and/or early retirement subsidies. (31) Nevertheless, the wife sought to have a QDRO entered that provided her with such benefits. (32) The Fourth District Court of Appeal found that the trial court erred in entering such a QDRO because the order provided benefits that were not included in the final judgment. (33)

Padot addresses division of military retirement pay. Like private pensions, military pensions have survivor benefits and military service members must elect or be court ordered to take part in the survivor benefit plans. In Padot, the Second District Court of Appeal held that when the underlying final judgment did not provide the wife with survivor benefits, she could not subsequently seek survivor benefits by virtue of her interest in the husband's retirement. The survivor benefit plan must be addressed at the time of the final judgment. (34) The court rejected the notion that the former wife could be made whole by creating terms within the military QDRO to compensate the wife for the husband's failure to elect former wife as the beneficiary of the survivor benefit plan when no such provision existed in the final judgment. (35)

The logic of Blaine and Padot is perhaps best stated in Jones v. Treasure, 984 So. 2d 634 (Fla. 4th DCA 2008), holding that, "A QDRO that fails to conform to dictates of the final judgment of dissolution will be reversed." (36) In fashioning this ruling, the appellate court noted that benefits not mentioned in a settlement agreement are not contemplated. (37) As a result, practitioners must know that they may lose benefits for their clients by failing to include the appropriate benefits, elections, and designations in marital settlement agreements and/or final judgments. Waiting to fix the problems in a QDRO is prohibited by law.

Conclusion

While the interaction between federal and state law is often controversial, ERISA and Florida have evolved almost seamlessly. Since the QDRO was created, this specific order has gone from an obscure legal mechanism to a valuable and necessary tool for enforcement. The courts still have a myriad of unresolved issues related to the division of retirement accounts. As such, practitioners must be aware of how the case law may evolve in the future in order to receive the maximum benefit for their client.

(1) See generally 29 U.S.C. [section][section] 1001-1001(b).

(2) Aside from these issues, which obviously relate directly to domestic relations law, there were also issues with the original incarnation of ERISA as they related to the treatment of working women who took time off to have children, the rules related to vesting, and the access of widows to their deceased spouse's retirement accounts.

(3) See, e.g., American Telephone & Telegraph Co. v. Merry, 592 F.2d 118 (2d Cir. 1979) (holding that garnishment of pen sion monies is implied as an exception to the anti-alienation provisions of ERISA); see also Cody v. Riecker, 594 F.2d 314 (2d Cir. 1979); see also Stone v. Stone, 633 F.2d 740 (9th Cir. 1980) (holding that ERISA was not intended to preempt community property laws and that a court order requiring a division of retirement benefits did not violate the anti-assignment provisions.)

(4) See 29 U.S.C. [section][section] 1001-1381.

(5) 29 U.S.C. [section] 1056(d)(3)(B).

(6) 29 U.S.C. [section] 1056(d)(1).

(7) 29 U.S.C. [section] 1056(d)(3)(A).

(8) See Diffenderfer, 491 So. 2d at 266-67.

(9) Id. at 269.

(10) See Reyher, 495 So. 2d at 800.

(11) Id.

(12) See Trant, 545 So. 2d at 428.

(13) Id. at 429 (citations omitted).

(14) See id.

(15) See Shannon, 598 So. 2d at 308.

(16) Id.

(17) Id. at 309.

(18) See Vizcaino, 635 So. 2d at 1013.

(19) See id. See also, generally, Board of Trustees of the Orlando Police Pension Plan v. Langford, 833 So. 2d 230 (Fla. 5th D.C.A. 2002).

(20) See Vizcaino, 635 So. 2d at 1014-15.

(21) See Hayden, 662 So. 2d at 717.

(22) See Adkins, 675 So. 2d at 200-01.

(23) See Boyett, 703 So. 2d at 451.

(24) Id.

(25) Id. at 452. See also generally Downey v. Downey, 843 So. 2d 932 (Fla. 4th D.C.A. 2003) (holding that premarital portions of a pension cannot be awarded as part of a QDRO); see also Nix. v. Nix, 930 So. 2d 711 (Fla. 1st D.C.A. 2006) (holding that valuation of a pension is fact intensive and no one formula of valuation achieves absolute equity).

(26) Boyett, 703 So. 2d at 452.

(27) See Kay, 723 So. 2d at 367.

(28) Id. at 367 (citations omitted).

(29) See Jahnke, 804 So. 2d at 517-18.

(30) Id.

(31) See Blaine, 872 So. 2d at 384.

(32) Id.

(33) Id.

(34) See Padot, 891 So. 2d at 1085.

(35) Id.

(36) See Jones, 984 So. 2d at 637 (citation omitted).

(37) Id.

Matthew Lundy is an associate at Older, Lundy & Weissman in Tampa. He practices in the area of marital and family law and manages the firms QDRO practice. He graduated from the University of Florida Levin College of Law in 2008.

This column is submitted on behalf of the Family Law Section, David Lawrence Manz, chair, and Sarah Sullivan and Amy Hamlin, editors.
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Title Annotation:Family Law
Author:Lundy, Matthew L.
Publication:Florida Bar Journal
Date:Nov 1, 2011
Words:3435
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