1st Circuit's Shawshank Exemption

United States of America v. Abell, No. 20-1120 (1st Cir. 2021)
1st Circuit Affirmed Order Garnishing 401(k) Despite Claimed Marital Interest

Dated: January 15, 2021
Affirming

I know what you’re thinking: why is EZ QDRO LAW blogging (1) about an appeal stemming from a criminal proceeding; and (2) about a 1st Circuit decision? Because it’s interesting. Read below, and see for yourself.

Background: Husband/Participant served as a financial officer and CFO at four companies, and over the course of 11 years, managed to embezzle nearly four million dollars. At the time of his sentencing, Husband claimed he was willing and able to pay substantial restitution, of which he ultimately paid only $7,875. To remedy this (at least partially), the government requested and was granted a writ of garnishment of Husband’s $393,500 401(k).

Pretty straightforward, right? Like another embezzler, Warden Norton, putting his hand through what he thought was a Rita Hayworth poster, you’re about to discover a hole where no one ever thought to look.

In his own opposition to the government’s motion, Husband argued such a seizure violated anti-alienation protections accorded to most retirement benefits under the Internal Revenue Code. And if you think that’s the interesting part (the tunnel out of Shawshank Prison, if you will), you’d be wrong. Husband was wrong too: forfeitures of retirement benefits to the federal government for criminal fines or restitution, on behalf of another party or itself, are permitted despite such protections being ironclad in most other instances (this is where we normally cue in the QDRO… but not quite yet).

The Hole: In the subsequent appeal of the garnishment, Wife made an argument that might make a lot of sense to anyone familiar with the concept of marital property and the legal bases thereof (like the people who read this blog). She maintained that the lower court erred in its interpretation of Massachusetts state law when it failed to recognize her vested legal interest in Husband’s garnished 401(k). The problem was, at least according to the Court, that Husband and Wife were still married. In its de novo review, the Court found that, while Massachusetts state law does establish a spousal right to any retirement benefits acquired during the marriage, it does so consequent to and as of the parties’ divorce.

In rebutting Wife’s arguments, the Court drew on examples and Massachusetts state law to show that the rights claimed by Wife were never intended to apply to this kind of proceeding, and arise almost exclusively from a divorce (cue the QDRO!). And while the reasoning is strong and no doubt more considered than its puckish retelling here, the decision also leaves us with some headscratching questions: is marital property really only marital property when there’s a divorce? And are the statutes that establish such rights limited in application to matters of divorce by design, or because that’s when they would usually come up?

In her appeal, Wife also made an argument that the survivorship protections under the plan similarly entitled her to a portion of the account, which the Court also dismissed.

And that, my friends, is how the 1st Circuit “crawled through a river of [ahem] and came out clean on the other side.”

Editor’s Note: EZ QDRO LAW would like to give a QDRO-shout-out to Joseph Herr for making sure this case didn’t slip past our QDRO eyes.

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