In the majority of divorce cases, most of the effort is spent negotiating a comprehensive property settlement agreement in which Husband and Wife identify and value marital assets and agree upon a final distribution. The property settlement agreement, however, is not the end of the process but, rather, the beginning of the transition of assets. Car titles must be transferred, deeds signed and recorded, retirement assets transferred. The agreement provides direction; the attorney and client must act upon this direction or risk losing the actual outcome of the parties’ negotiation.
A recent U.S. Supreme Court decision highlights that there is a second phase of a divorce agreement. In Kennedy, Executrix of the Estate of Kennedy, deceased v. Plan Administrator for DuPont Savings and Investment Plan, et al., 129 S.C. 865 (2009), the United States Supreme Court held that a DuPont Plan Administrator of a pension properly disregarded a property settlement agreement in favor of a beneficiary designation form. In summary, the Court held it is proper to disregard the intent of the parties in a property settlement agreement when there is a signed contractual obligation outside the agreement.
In Kennedy, the Wife, as part of her property settlement, specifically waived her legal right to her husband’s ERISA — qualified pension. The Husband never changed the beneficiary designation form on his pension plan to reflect a new beneficiary. In 1974, he had named his wife as beneficiary with no contingent beneficiary. When the parties divorced twenty years later, in 1994, there was no follow through on the direction in the property settlement agreement. The Husband died in 2001. It was at this time, seven (7) years later, that the Husband’s family discovered the named beneficiary on his pension plan was his former wife. Upon application of benefits, the DuPont Administrator paid $400,000.00 in benefits to Wife, relying solely on the plan documents and designation form. These were the same benefits the wife waived in the property settlement agreement! Husband’s estate sued, arguing the benefit should be payable to his estate.
After two lower court decisions, the Supreme Court held that the Plan Administrator had no obligation to look outside the plan documents and designation form. The Plan Administrator did not have to consider documents outside the plan including the parties’ settlement agreement and Wife’s waiver. This was a happy day for Husband’s ex-wife!
Lesson learned: A comprehensive follow through for all agreements is an integral part of a divorce settlement. As part of MacElree Harvey’s initiative in practice, our family law department ensures that the downstream items — deeds, car titles and insurance, beneficiary designation forms, retirement assets or mutual funds are properly transferred.
The following article is informational only and not intended as legal advice. Speak with a licensed attorney about your own specific situation. © Copyright 2011 MacElree Harvey, Ltd. All rights reserved.
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