Hammertime - Part Four: Ohio Case Law Updates

What's round on the end and high in the middle? QDROs, that's what.

What's round on the end and high in the middle? QDROs, that's what.

We've almost made it all the way through my four-part 'Hammertime' blog series! I don't know about you, but I'm getting pretty exhausted with all this QDRO news, so here's that .gif of MC Hammer dancing again.  Let us all look to its perpetual motion, and effortless, unending dance, as a source of strength, and a testament to the boundless nature of human endurance...  And endurance you'll need, because we've now entered the final installment of my 'Hammertime' blog series, highlighting some of the most recent and important decisions coming out of Ohio.

Cook v. Cook, 9th Dist. Summit No. DR-2003-08-3121, 2017-Ohio-8848
Trial Court has Broad Discretion to Determine Marital Property Interests in a Pension

Dated: December 6, 2017
Affirming

This is a great case for a refresher course on your favorite thing, coverture!  In this case, the decree stated, in part, that Husband’s OPERS pension (payable at Husband’s retirement as a stream of future monthly benefits over his lifetime) should be equally divided by DOPO (Division of Property Order), and that, for purposes of making the division, the marital period was from the date of marriage to the date of trial.  The subsequent DOPO, entered by the trial court and signed by both parties, awarded Wife a percentage of a fraction of Husband’s benefits (50% of the coverture fraction, i.e., number of years of marriage overlapping with OPERS participation, divided by total years of service credit).   The DOPO did not indicate a limit to the number of monthly payments Wife should receive.  Ten years later, Husband claimed that the DOPO should terminate because Wife had, by the time of his motion, received half of the marital portion of his OPERS pension (based on what appeared to be a present day cash valuation he obtained for the term of marriage).  Husband further claimed that if the DOPO was not terminated, the trial court would otherwise run afoul of improperly modifying the decree by way of the DOPO. 

The crux of Husband’s argument was premised on his notion that the decree provided for a fixed value assignment of the marital portion of the OPERS account to Wife, and that this ascertainable amount had been paid.  The trial court disagreed with Husband’s interpretation of the decree, and determined instead that a specific value had not been established by the terms of the decree, and therefore, that there had likewise been no improper modification of the decree by way of the DOPO. 

This opened the door to the Court of Appeals’ full review of the trial court’s excellent analysis distinguishing the methods that a trial court might employ to determine an equitable division of a pension based on either: a fixed present cash value (for an immediate distribution offset with property other than the pension itself); a frozen coverture method (to divide the pension itself at retirement, with a formula and value that are fixed as of date of divorce); or a traditional coverture method (to divide the pension itself at retirement, with a formula that is based on the value as of the date of retirement - the method employed by the DOPO).  The differences between the three methods, and what circumstances warrant utilization of one over another could be the basis of a white paper; so suffice it to say for this post, at least, that Ohio courts typically utilize the traditional coverture method, as espoused under Hoyt v. Hoyt.   But if you ever get confused, Cook provides an excellent primer.

Berger v. Berger, 11th Dist. Geauga No. 2017-G-0108, No. 2017-Ohio-9329
Trial Court has Broad Discretion to Secure an Awarded Property Interest

Dated: December 29, 2017
Modified and Affirmed as Modified

Although this case is concerned more with the adequacy of the security ordered by the trial court to preserve a spouse’s awarded marital property interest ($1.9 million, which was to be paid over a 12 year period), it is hinged on the proposition that a trial court has broad discretion in fashioning its equitable division of marital property.  To the extent a trial court deems necessary, as in this case, this may include the discretion to order Husband’s maintenance of a life insurance policy for Wife’s benefit to protect her property interest until fully transferred. The take home here: particularly when assigning an interest in a retirement asset that cannot be immediately realized by the assignee spouse, such as with many non-qualified ‘executive’ plans and certain government and church plans exempt from ERISA (which do not accept QDROs or other state court property division orders), precaution must be taken to ensure the transferee spouse’s property interest is secured.  This may be by a term-life policy, or some kind of beneficial interest in the asset itself, such as with a preretirement or postretirement survivor annuity, when available under the plan terms.

Okoye v. Okoye, 9th Dist. Summit No. 2013-09-2546, 2018-Ohio-74
Trial Court has Broad Discretion to Determine Marital Property Interests in a 401(k)

Dated: January 10, 2018
Affirmed

Husband argued that a marital 401(k) account should not be considered marital property subject to division to the extent a portion of it – he claimed – was pledged to re-pay a marital debt, including a loan expended for purposes of medical treatment and the adoption of the couple’s children.  The trial court did not find Husband’s evidence of the debt (his unrebutted oral testimony) to be credible, and instead found Husband had dissipated funds from the account without Wife’s knowledge.  The trial court thus determined the entire account to be marital, and subject to equitable division.  The Court of Appeals, in affirming, reminds us that: “Only in the exceptional case, where the evidence presented weighs heavily in favor of the party seeking reversal, will the appellate court reverse.”  The Court was unimpressed by the fact that the testimony was unrebutted, noting, “The mere fact that testimony is uncontroverted does not necessarily require [a court] to accept the evidence if [it] found that the testimony was not credible.”

Fitzgerald v. Fitzgerald, 8th Dist. Cuyahoga No. DR-14-352039, 2018-Ohio-387
A QDRO that Improperly Modifies the Decree is Voidable for Error and Subject to Appeal

Released and Journalized: February 1, 2018
Reversed and Remanded

The parties in this case agreed that the QDROs entered by the trial court deviated from the terms of their settlement agreement.  The parties disagreed, however, as to whether this made the QDROs "void" for lack of subject matter jurisdiction (meaning the QDROs were not final appealable judgments, but could be vacated or set aside under the inherent powers of the trial court), or "voidable" for error only, and subject only to appeal for review of the error concerned.  The Court traversed a riddled landscape of prior case law within the 2nd and 8th Districts – including review of the dangers inherent in “jurisdictionalizing” error – and determined that the QDROs, which were agreed to be non-compliant with the settlement terms, were not void for lack of jurisdiction, but rather, voidable for error, and appealable.  Since the appeals were timely filed, the Court vacated the QDROs, and remanded to the trial court for further review in light of the parties’ agreement.  

As an aside, noting the potential consequence of its decision, in that often a plan administrator may reject a QDRO long after the time for an appeal has expired, the Court opined that when there was no issue regarding the conformity of a QDRO to settlement terms, but rather an issue arises because a plan administrator subsequently refuses the terms of the QDRO, a Rule 60(B) motion is the appropriate venue for reconsideration. 

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In closing out 'Hammertime' - I can't resist hammering it home with this final gem.  The takeaway?  Sometimes when you have a hammer, it really is a nail!  Thanks to Maury White, Esq. for sharing this from a past IACP workshop.

Hammertime Installments:

Additional Links of Interest for Diehard QDRO Fans:

QDRO PRIMER FOR OHIO FAMILY LAW PRACTITIONERS

Saks v. Riga, 8th Dist. Cuyahoga No. 101091, 2014-Ohio-4930
Lions (Expert Witnesses), Tigers (Coverture), and Bears (Deferred Distribution), Oh My!

Released and Journalized: November 6, 2014
Judgment Affirmed in Part, Reversed in Part, and Remanded

Today’s feature case is just plain good ole’ domestic relations law fun. It hits on several pinnacle issues related to QDROs (or in this case rather, a Court Order Acceptable for Processing (COAP), which divides Federal Employees Retirement System (FERS) pensions). In fact, the issues are so well canvased that this Opinion makes a wonderful primer – or refresher course – for domestic relations attorneys practicing in Ohio.

For starters, both parties in this case were/are attorneys. So that may help explain the need for a 34 page Opinion. After trial, the magistrate divided the parties’ marital property, and ordered Husband to pay monthly child and spousal support and one-half of Wife’s attorney fees. Both parties filed objections to the magistrate’s decision; the trial court overruled all of the objections and adopted the magistrate’s decision except for a few limited modifications. Husband appealed, raising eleven assignments of error. Wife cross-appealed, raising one assignment of error.

I have broken down the relevant issues in Saks v. Riga in an index-like format below, for future quick reference. But I strongly encourage every attorney reading this blog (or just the two, thanks DP and GA) to read this Opinion in full. You know, with all your spare time.

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VALUING KTRS PENSIONS IN DIVORCE: WHERE DO WE GO FROM HERE?

How Does the Family Law Practitioner Properly Advise a Client in Divorce When One Party Participates in KTRS?

This blog post is based upon a topic I have researched over the past year, and am continuing to explore with the intention of ultimately submitting something more formal for publication.  This post follows my general blogging trend.  I present a problem – for instance, in this case arising from legislative and judicial ambiguity – and then submit to my reader a possible solution to chew on.  It is a longer post than usual, and is not for the faint at heart.  Venture at your own risk...

Recently, in Eden v. Eden, No. 2012-CA-000819-MR (Ky. App. 2014), the Kentucky Court of Appeals considered the proper classification and division of a Kentucky Teachers’ Retirement System Pension (“KTRS Plan” or “KTRS Pension”) in divorce pursuant to the governing statutes and regulations (see my blog post dated March 25, 2014).   Although not directly at issue in Eden, because the participant was already retired and drawing his monthly retirement allowance, this author could not help but to be reminded of the uncertainty under state law when valuing, classifying, and dividing a KTRS pension in divorce.

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KNOW THY EXPERT, BUT ALSO KNOW THY PLAN AND THY LAW

Eden v. Eden, No. 2012-CA-000819-MR (Ky. App. 2014)
Court Finds Pension Evaluator Did Not Follow the Law

Rendered: March 14, 2014
Not to be Published
Opinion Vacating and Remanding

The Kentucky Court of Appeals’ most recent QDRO-related case may be an occasion for pause for even the most careful and seasoned family law practitioner.  The facts are relatively simple.  Husband had a Kentucky Teachers' Retirement Systems (KTRS) pension in pay-status, and Wife had a Kentucky Lottery Corporation retirement account.  The family court adopted the expert opinion of Wife’s Certified Public Accountant (CPA) as to the valuation and proper division of the marital portion of both pensions.  Husband submitted no expert testimony in rebuttal.  See, that wasn’t so bad.  Now what could be the problem?

Bring on the math.  The CPA testified that the present value of Husband’s pension was $1,332,771.00, and of that amount $1,112,864.00 was marital.  The CPA found Wife’s retirement benefits, which were all marital, totaled approximately $385,603.00, and thus that the parties combined marital retirement benefits equaled $1,498,467.00.  The CPA then concluded that Wife should retain her retirement benefits in totem, and that an additional $363,631.00 would be required to equalize the parties’ retirement assets.  Relying on the CPA’s testimony, the family court determined that to effectuate the division of Husband’s account, Wife should receive 27.284% ($363,631.00 / $1,332,771.00 = 27.284%) of Husband’s KTRS pension via QDRO. 

Husband appealed, contending that the family court erred in its valuation and division of his KTRS pension.  Specifically, Husband asserted that the family court erroneously relied upon Wife’s expert because his opinion did not comport with 102 KAR 1:320 Section 7, which sets forth a very specific multi-step method of calculation for the valuation and division of KTRS benefits upon divorce.   Namely, 102 KAR 1:320 Section 7 requires that: (1) the participant’s “total service retirement allowance” must be obtained as of the date of divorce; then (2) the total service retirement allowance is reduced by the amount of benefits held by the non-KTRS spouse; and finally (3) the remaining amount of allowance is divided by a marital coverture fraction through the date of divorce.

The Court of Appeals agreed that the CPA didn’t follow the mandates of 102 KAR 1:320, and vacated the family court’s opinion, remanding to the family court for reconsideration of the valuation and division of Husband’s KTRS pension in accordance with 102 KAR 1:320. 

Insert author curiosity and a quick Google search of Husband's work history.  If Husband were to have had 33 years of creditable service with KTRS during the marriage, the difference in the amount awarded to Wife under the CPA’s methodology and 102 KAR 1:320 is substantial: $363,630 to Wife via CPA, versus $274,678 to Wife via 102 KAR 1:320.  That’s about $90,000 less for Wife.

And as Judge Clayton opines, a remand so significant in terms of dollars will likely cause a “ripple” effect on the equitable division of the remaining property pursuant to KRS 403.190.  Taking heed, this author also notes that the family court’s opinion was rendered in February of 2012, more than two years from the date of the Court of Appeals remand – plenty of time for assets to legitimately dissipate.   However, what we know is still left is the sting of superfluous expert fees and unnecessary post-litigation costs.  That is frustrating to this author, especially in this case, where counsel for Wife was apparently diligent in her representation.  But as always, instead of giving up, let’s peel back the onion (and fight the tears) together and figure out how to prevent a repeat of Eden.   

In some ways, experts tend to exist in a vacuum.  Each knows a great deal about one flower in the garden, but more than one expert might be necessary in order to see the entire garden.  Your expert team should know three areas: the actuarial mathematics to calculate present values; the federal and state law governing the plan being examined, as well as the plan's specific terms and internal QDRO procedures and rules; and your state's domestic relations law as it relates to those present values and the division of marital property rights (e.g., there are significant variations in such law amongst Kentucky, Ohio, and Indiana).  Few experts alone have a comprehensive knowledge of more than one of those areas.  And a deficiency in any one of those areas can end up blind-siding even the best expert witness.  As seen in the garden of Eden (sorry, couldn’t help it), after one has adopted the appropriate methodology for formulating present values, knowledge of the specific plan terms and the law become of paramount importance.

If the thought of putting together a “team” of knowledgeables scares you, or your client’s pocketbook, just reflect upon the famous idiom – penny wise and pound foolish.  Take care of the pennies and the pounds will take care of themselves.  I hate to even guess at this, because it makes my head hurt for the parties involved and the advice comes at their cost, but my take is that Wife would have spent less adding another member to her trial team to work in conjunction with the CPA, rather than what she ended up spending on unrewarding post-decree litigation.

* See my previous blog post from July 19, 2013 regarding recent legislative updates to KTRS, specifically to 102 KAR 1:320, which directly affects QDRO submissions.

Methods of Pension Division in Divorce

Fitzgerald v. Fitzgerald, No. 2012-CA-000532-MR (Ky. App. 2013)
Deferred Distribution Trumps Immediate Offset Yet Again

Rendered: November 15, 2013
Not to be Published
Opinion Affirming

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The Opinions keep coming in from the Kentucky Court of Appeals.  This past Friday, the Court had the chance to yet again review another trial court’s decision with regard to the division of multiple retirement plans in divorce.

There were four combined plans at issue, two pensions and two deferred compensation plans.  Of significance in this case, Wife’s pension was with the Kentucky Teacher’s Retirement System (KTRS).  To Husband’s protest, without discussion of the value of either pension plan, the trial court divided each plan via the deferred distribution method and by utilizing QDROs (incorporating a coverture formula to determine the appropriate marital portions).  Husband sought the plans to be divided instead by the immediate offset method (also referred to as the “net present value method”; for instruction on the differing methods of pension division under Kentucky law see Armstrong v. Armstrong, 34 S.W.3d 83 (Ky. Ct. App. 2000)).  The Court of Appeals, in affirming the trial court’s decision to divide the pensions via deferred distribution, considered both the speculative nature of a pension plan in terms of actualization of benefits for the participant and the difficulties involved with attempting to equalize state and private pension plans.

To the practitioner with a ‘perked ear’:  The Court took heed of the trial court’s finding that the KTRS plan included post-retirement cost-of-living (COLA) increases and did not include participant payments into Social Security.  While to the contrary, Husband’s private pension did not include COLAs and did pay into Social Security.  Could this mean Kentucky courts are ready to look at issues our sister states have previously reconciled (i.e., the difficulties in comparing the valuations of government and private pensions that have often incompatible terms, like whether the participants pay into Social Security, are entitled to COLAs, etc.)?

As a side note of interest, at trial, the parties called a joint witness to address the issues of the four retirement plans.  The trial court ordered that the witness prepare the resulting QDROs ordered by the Court (for both the pensions and the deferred compensation plans) and that the parties “equally share the cost of [the witness’s] service.”  In such complex matters, perhaps the joint hiring of a skilled intermediary is a worthy consideration in order to avoid a Pyrrhic victory in the courtroom.  That is, when the parties truly seek a neutral third party to preserve the equities, and share the mutual desire to keep the costs of litigation from eating away at the ‘reason for fighting’.

Avoiding Pitfalls - Defining the "Marital Portion"

Triplett v. Triplett, No. 2011-CA-002076-MR (Ky. App. 2013)
Assigning and Dividing Marital Property Under a Defined Benefit Pension

Rendered: July 5, 2013
Opinion Affirming

In this appeal arising from a dissolution of marriage action, Wife challenged the orders of the Jefferson Family Court related to the division of Husband’s pension, specifically the designation of marital and non-marital property, and the ultimate percentage award made to Wife.

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Wife failed to preserve for appellate review her specific claim that the subtraction method, rather than a marriage coverture fraction, should have been used to identify the marital and non-marital portions of Husband's pension, as well as her calculation of value of Husband's pension plan at time of dissolution according to a “bright-line rule”.  In direct conflict, Wife argued before the trial court that a coverture fraction should have been used, and she relied upon a different calculation with respect to bright-line rule in her appellate brief than she used before trial court.

Confusing?  Yes.  But have no fear.  Since Wife failed to preserve her claims, the impact of the decision is fairly limited.  But there are still lessons to be learned. 

As a preliminary matter, practitioners must take heed when negotiating and drafting a property settlement agreement.  It is not enough to say that the “parties agree that the marital portion of said pension shall be awarded 50% to Petitioner and 50% to the Respondent.”  When the term “marital portion” is not defined in the agreement, it opens the door to protracted litigation when the proposed QDRO is later prepared.

There are various ways to assign and divide the marital/non-marital portions of a defined benefit pension.  Of course, each method will either be more or less advantageous to your client.  Under a defined benefit plan where the amount of retirement benefits is substantially related to the number of years of service, a marriage coverture fraction may be the best method of protecting the alternate payee’s interests.  Where a coverture fraction is the preferred method, whether in negotiating and drafting a property settlement, or when presenting your client’s case at trial, it is absolutely critical that the nature of the coverture fraction be understood, as drastic and unintended results can occur depending on the formula used.

This lesson could not have been made plainer than in Triplett.  The initial coverture fraction Wife presented to the trial court resulted in her seeking 27.5% of Husband’s pension.  Based on its own coverture formula, the trial court instead awarded Wife just 10%.  Of note, in her CR 59.05 motion, Wife sought an award of 13.91%, and on appeal sought 22%, both percentages based on alternative coverture formulas.  After years of litigation, the Court of Appeals affirmed the award of 10% to Wife, substantially less than she sought at any point during the litigation.