Isn’t it Ironic? Federal Law may Determine Marital Property Rights in Divorce

Veit v. Veit, No. 2014-CA-001503-MR (Ky. Ct. App. 2016)
Federal Law Trumps State Family Court Concerning Award of Survivor Annuity

Rendered: March 18, 2016
Not To Be Published
Opinion Affirming

Veit touches on a point that cannot be overstated (of course, I think that about virtually every QDRO-issue, so this probably isn’t news to you). The point may seem somewhat ironic at first, the idea that a state domestic relations court might not have jurisdiction to determine certain marital property rights in divorce. Generally, of course, state domestic relations law does in fact govern the treatment of marital assets in divorce. However, when dividing and assigning retirement assets, state domestic relations law must yield and give deference to controlling federal regulatory and tax law. The result is often an explosive mix of state and federal law, with the two systems often in conflict. For this reason, the implications of dividing and assigning retirement assets to determine marital property rights, spousal support, and child support, often trigger complex and unfamiliar financial issues.

One of the largest federal ‘jurisdictional nets’ comes into play with private-employer retirement plans. This is where I could spend the rest of the post discussing federal preemption and the interplay of family law with both ERISA and IRC. But I’ve got to get to Veit, which typifies another significant area wherein family law must yield to federal law:  government-sponsored retirement plans (e.g., federal civil service, railroad, and military). I will save non-profit and state or municipal plans for another day. You’re welcome.

Government-sponsored retirement plans are exempt from ERISA and for this reason, these plans play by their own rules, at least to the extent that state law is preempted. This can often result in many an unpleasant surprise in divorce because the available plan benefits and administration of those benefits can vary greatly from ERISA qualified plans. Veit concerned the division of military pension benefits by a state domestic relations court. [As an aside, prior to McCarthy v. McCarthy, 4543 U.S. 210, 101 S.ct2728, 69 S.Ed.2d 589 (1981), state law was unable to effectuate the assignment of military retirement assets in divorce proceedings at all. As a result, Congress passed the Uniformed Services Former Spouses’ Protection Act (USFSPA), allowing state courts the option to classify United States armed forces disposable military retirement pay as property divisible upon divorce. 10 U.S.C. § 1408.]

In Veit, Husband appealed a post-dissolution order of the Carter Family Court addressing provisions of the USFSPA, and Wife’s right to collect a portion of Husband’s retirement pay should he predecease her. Husband and Wife were married for sixteen years prior to their dissolution in 2013. At the time of dissolution, Husband was retired from the United States Navy.

With respect to Husband’s retirement benefits, the Family Court’s decree stated: “[Wife] is awarded that part up to the amount of 50% of [Husband's] pension from the United States Navy is (sic) much as federal and military regulations allow.” One year later, Wife filed a motion to modify the decree in order to clarify its reach by adding a specific provision affording her survivor benefit coverage associated with Husband’s retirement pay in order to protect her marital property interest in the pension. The family court granted the motion and ordered Husband to elect the survivor annuity.

Husband appealed on the basis that while the USFSPA permits the state court to require a service member to elect to provide an annuity for a former spouse, such election must be made within one year of dissolution pursuant to the USFSPA. After careful analysis of the USFSPA, the Court of Appeals determined that although Husband failed to timely make the election in compliance with the family court’s order, Wife could now attempt to make her own request to the Secretary of the Navy pursuant to the USFSPA (referred to as a "deemed election"). For this reason, despite affirmance of the trial court’s award of the survivor annuity to Wife, the Court of Appeals aptly observed that the final word regarding the availability of any survivor annuity for Wife does not rest with the Court of Appeals. Rather the proper resolution of the dispute lies solely with the Department of Defense. That is because it is federal law – not state domestic relations law – that will determine whether Wife took the necessary steps, in compliance with 10 U.S.C. § 14509f)(3)(A), in order to timely preserve her marital property interest. 

In other words, ironically the Department of Defense trumps the state family court’s jurisdiction regarding its award of a survivor annuity intended to protect Wife’s marital property interest in divorce.   

i·ro·ny
ˈīrənē/
noun: irony

A state of affairs or an event that seems deliberately contrary to what one expects and is often amusing as a result.

I imagine the parties in this case are fairly unamused.  The lesson here is that a practitioner must ensure that retirement benefits assigned in divorce – under the state court’s jurisdiction – are also assigned in accordance with other controlling law, and that the necessary steps are taken in accordance with other controlling law to obtain the court awarded benefits. 

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