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:

Ohio's Highest Court Speaks on Unvested Retirement Benefits in Divorce

Daniel v. Daniel, Slip Opinion No. 2014-Ohio-1161 (March 26, 2014)
Unvested Military Retirement Benefits Earned During Marriage Constitute Marital Property

Decided: March 26, 2014
To be Published
Judgment Reversed and Cause Remanded

In Daniel v. Daniel, Slip Opinion No. 2014-Ohio-1161 (March 26, 2014), the Supreme Court of Ohio squarely addressed the issue of whether an unvested military pension earned during the marriage should be considered marital property subject to equitable division.  This case was brought to my attention by a colleague, after our recent discussion regarding the status of unvested retirement benefits in divorce under Ohio law.  If there was any question, this author's opinion is that the matter has finally been put to rest by Daniel:  Unvested retirement benefits earned during the marriage constitute marital property subject to equitable division by either the present cash value or deferred distribution method (via QDRO, or other similar court order).

An unvested retirement benefit is one where the employee has not yet fully earned the right to receive the benefit. Typically, companies – or federal/state/municipal agencies and the military – require a certain number of years of service before an employee becomes vested, and the employee often becomes vested in increments.  An employee is said to be vested when he or she completes the minimum terms of employment necessary to be entitled to receive retirement pay in the future.

By statute in Ohio, under R.C. 3105.171(A)(3)(a)(i) and (ii), trial courts must consider "the retirement benefits of the spouses" acquired during the marriage when dividing marital property in accord with R.C. 3105.171(C).  According to Ohio’s intermediate appellate courts, this mandate extends beyond vested retirement benefits to include unvested benefits as well.  See Lemon v. Lemon, 42 Ohio App. 3d 142, 537 N.E. 2d 246, 248 (4th Dist. Hocking County 1988); see also Younkin v. Younkin, 1998 WL 894849, *3 (Ohio App. 10th Dist. Franklin County 1998); Varns v. Varns, 1992 WL 6649, *1 (Ohio App. 9th Dist. Wayne County 1992); Haller v. Haller, 1996 WL 116140, *2 (Ohio App. 12th Dist. Warren County 1996)(citing numerous cases from the 10th and 12th Districts).  As a matter of first impression in Ohio, in Lemon, a seminal and oft-cited case on point, the Appellate Court determined that the trial court erred in failing to consider Husband's unvested Ohio Operating Engineers Pension Plan (a private-employment defined benefit plan) a marital asset subject to division upon the parties' divorce.  The Lemon Court held that the controlling statute clearly required consideration of unvested retirement benefits as marital assets.  Lemon, like the Daniel Court, interpreted the applicable statute to have broad reach, concluding that the legislature must have intended so; both Courts expressly observed that no statutory distinction was made between vested and unvested retirement benefits (see Lemon at 249; Daniel at Paragraph 9, page 4; see generally Daniel's "Syllabus of the Court"). 

Of note, and a basis upon which to read the Daniel Opinion as having a general application beyond that of military benefits, the Daniel Court referenced Wilson v. Wilson, 116 Ohio St.3d 268, 2007-Ohio-6056, 878 N.E.2d 16 (2007).  In Wilson, the trial court awarded one-half of Husband’s Teamsters' pension earned during the marriage to Wife, “if and when it becomes vested”.  After acknowledging the private-employment nature of the Teamsters' pension, as opposed to a non-private military pension, the Daniel Court aptly reflected: 

Our holding in Wilson v. Wilson, 116 Ohio St.3d 268, 2007-Ohio-6056, 878 N.E.2d 16, provides a useful example of the “deferred distribution” method of accomplishing an equitable division of an unvested retirement benefit.

(See Daniel at Paragraph 12 & FN1, page 5).  

After Daniel and Wilson, as well as Lemon and its progeny, I think it a safe position to take that in Ohio, both vested and unvested retirement benefits earned during marriage fall within the ambit of “martial property” as defined by R.C. 3105.171(A)(3)(a).  Thus, such benefits are subject to equitable division pursuant to R.C. 3105.171(C), and trial courts may utilize a QDRO, or other similar order, as a mechanism to defer distribution until benefits become fully vested and mature.  

BOTH SIDES OF THE RIVER?

Kentucky appellate courts have taken the same position – i.e., that vested and unvested retirement benefits earned during the course of the marriage constitute marital property subject to equitable division.  See Poe v. Poe, 711 S.W.2d 849, 856 (Ky. App. 1986); Smith v. Rice, 139 S.W.3d 539, 541 (Ky. App. 2004).  As a matter of fact, and as observed by the Daniel Court, the majority of states have reached the same conclusion (see Daniel at Paragraph 10, page 4, citing a Tennessee Supreme Court case listing similar cases from 37 states). 

To that end, of the six states bordering the Ohio River, there is only one state that considers unvested benefits separate non-marital property.  In Indiana, unvested retirement benefits belong to the employee-spouse and are not divisible in divorce (however, the court may consider their eventual value as part of dividing other marital property).  Under Indiana’s statute, the determinative factor as to whether retirement benefits constitute "martial property" subject to distribution falls upon whether the employee-spouse “possesses” the funds.  To the extent retirement benefits remain unvested at the time of equitable distribution, such will be "acquired," if at all, only after the dissolution and therefore should not be characterized as a divisible marital asset.  See Bizik v. Bizik, 753 N.E.2d 762 (Ind. App. 2001); Harvey v. Harvey, 695 N.E.2d 162 (Ind. App. 1998).

TODAY’S ‘TAKE HOME’ FOR FAMILY LAW PRACTITIONERS ON BOTH SIDES OF THE RIVER

Thus, in Ohio and Kentucky, when classifying and dividing retirement benefits in divorce, both vested and unvested benefits earned during the marriage should be considered marital property subject to equitable distribution.  This means that whether in settlement negotiations or at trial, these amounts are ‘on the table’. Especially when representing the Alternate Payee, you do not want to leave the table without having ensured appropriate allocations; the Alternate Payee should maintain the same vesting status as the Participant and distributions should be made accordingly. 

VEST, VESTED, VESTING -- Words That Should Never be Arbitrarily Used in a QDRO

Don’t inadvertently short-change your client’s rights.  As seen by the canvas of cases above, it is state law, not ERISA, that determines how much of an employee’s retirement benefit is available for distribution in divorce (for non-ERISA plans, the same is also generally true, though there are exceptions, such as the Federal Thrift Savings Plan).  In fact, ERISA allows the assignment to an Alternate Payee of 100% of the current or future retirement benefits of the employee-spouse. 

However, most defined contribution plan model QDRO forms limit the Alternate Payee's award to a portion of the Participant's “total vested account balance”.  This is because the plan’s model is designed in an effort to ease the plan’s administrative and financial burdens by attempting to avoid the additional bookkeeping involved with an award of unvested benefits to an Alternate Payee.  Therefore, when using a retirement plan’s model QDRO, when you see the words "vest, vested, or vesting", first look to controlling state law to determine whether there is indeed any such restriction on divisibility with regard to unvested benefits.  The bottom line in Ohio or Kentucky?  When the plan's model language assigns only "vested" benefits to the Alternate Payee, if such language differs from your client’s goal or the parties’ intent, make sure you use your own language, not the plan’s.

Also, be aware that some plans may (wrongly) resist language assigning unvested benefits to the Alternate Payee, or even flatly reject a QDRO until the Participant’s account has vested.  To get around such obstacles, if the intent is to award a portion of the unvested benefits to the Alternate Payee, make sure you’ve included language in the parties' property settlement agreement (or trial order) that will make the Participant personally liable to the Alternate Payee for any such amounts.  A motion holding the employee in contempt may be less expensive and time consuming than trying to force the plan through litigation to pay unvested amounts, or the risk and expense associated with waiting to submit a later QDRO, once the unvested amounts ultimately vest with the Participant.

Finally, make sure to review the Participant’s most recent account statement, particularly with a defined contribution plan.  If the entire account balance is vested, non-vesting is obviously a non-issue, and saves a fight with a recalcitrant plan (for another day...).