A belated qualified domestic relations order (QDRO) is not barred by the contract Statute of Limitations. It may also be used to collect arrears in the ex-spouse’s share of pension payments paid to the retiring employee before the post-retirement QDRO first goes into effect. Moreover, while the employee’s post-divorce loan against the pension will be charged only against the employee’s share, the reduction in monthly benefits attributable to the employee electing after the divorce joint and survivor benefits with the next spouse is to be shared with the first spouse.
So held the Appellate Division, Second Department, in last month’s decision in Krause v. Krause. In that decision the appellate court addressed for the first time the question of whether the submission for judicial approval of a proposed QDRO, instead of a motion made on notice, may be employed by a party to a matrimonial action to obtain pension arrears. The Second Department held that a QDRO may be used for such a purpose. [A QDRO is a court decree recognized by the Internal Revenue Service that allows the division of retirement plan benefits incident to a divorce, without triggering current income taxation or early withdrawal penalties.]
Carol and Richard Kraus were married in 1973. During a portion of the marriage, the wife was employed by the State of New York as a hospital nurse. The husband was employed by the Fire Department of the City of New York (the FDNY) as a firefighter from 1977 to 2008. As a firefighter, the husband was a member of a pension system for much of the parties’ marriage. The wife was also a member of a pension system as a State employee.
In 1993, the wife commenced a divorce action. On November 1, 1995, the parties reached a settlement, pursuant to which each spouse was entitled to a marital share of the other spouse’s pension in accordance with the formula set forth in Majauskas v Majauskas (61 N.Y.2d 481). The stipulation expressly provided that “[a] Qualified Domestic Relations Order shall be prepared in the course of any divorce and forwarded to the Court for signature and filed with the Husband’s employer.” A judgment of divorce was signed by the Supreme Court on February 21, 1996.
Less than a year after entry of the judgment, the husband obtained a Qualified Domestic Relations Order (hereinafter QDRO) from the court in order to effectuate payment of his share of the wife’s pension. However, for unknown reasons, no proposed QDRO was initially submitted by the wife in connection with her share of the husband’s pension.
Several years passed. The husband remarried and continued to work for the FDNY until his retirement on March 1, 2008. The wife alleged that she was never notified of the husband’s retirement.
After the divorce was finalized, but prior to his retirement, the husband took out a loan against his pension, which had an outstanding balance of $8,503.24 at the time of his retirement. To repay the loan, the husband’s overall retirement pension was therefore reduced by the plan administrator of the New York Fire Department Pension Fund (hereinafter the FDNY pension plan) by the sum of $848.58 per year.
The maximum possible pension was further reduced by the husband’s election of a survivorship benefit in favor of his second wife. The loan repayment and survivorship deductions reduced the annual pension benefits received by the husband from a maximum amount of $65,926.56 to $58,887.03. The reduction concomitantly reduced the wife’s share of the husband’s overall pension, which was calculated, according to the terms of the parties’ stipulation, as 22.3% of the total.
On August 29, 2012, approximately 6½ years after the Supreme Court signed the judgment of divorce and 4½ years after the husband’s retirement, the wife learned of the husband’s retirement, and submitted a proposed QDRO to the Supreme Court for settlement and signature. During the time between the husband’s retirement and the wife’s submission of the proposed QDRO, the husband had been receiving his pension without any deduction for the wife’s share.
The wife’s proposed QDRO called for two mathematical calculations, to which the husband objected. First, it proposed that the wife’s 22.3% share of the husband’s pension be calculated against its maximum potential annual allowance of $65,925.56, rather than against the actual annual allowance of $58,887.03. The wife employed the higher pension amount on the ground that the husband’s loan and survivorship deductions were unilaterally incurred by the husband, and not contemplated by the parties in the stipulation.
Second, the proposed QDRO called for the husband to pay the pension arrears accumulated from March 1, 2008, to September 1, 2012, which totaled $66,157.02, by means of monthly payments in the same amount as were to be paid during the period of arrearage.
The husband opposed the wife’s proposed QDRO and submitted his own proposed QDRO, with cross notice of settlement. The husband’s proposed QDRO directed payment to the wife of her Majauskas share of the actual, reduced retirement benefit, necessarily reflecting the deductions for the pension loan repayments and election of the survivorship option. The husband’s proposed QDRO included no provision for the payment of arrears accumulated between March 1, 2008, and September 1, 2012. In submitting his proposed QDRO to the Supreme Court for settlement and signature, the husband argued that QDROs perform the limited function of enforcing pension-related provisions of divorce judgments and, therefore, cannot be employed to resolve collateral matters such as arrears. The husband also argued that, as to the pension loan and survivorship reductions, the parties never expressly agreed that such reductions were prohibited, and that the wife’s proposed QDRO could not therefore be employed to impose new obligations not previously agreed upon.
On March 26, 2013, Orange Count Supreme Court Justice Carol S. Klein signed the husband’s proposed QDRO, and that QDRO was entered on April 19, 2013.
On appeal, the Second Department modified the QDRO to the extent of awarding the wife pension arrears accumulated between the husband’s retirement on March 1, 2008, and March 26, 2013, the date that the QDRO appealed from was signed. The appellate court also directed that the wife’s share of the husband’s pension benefits be calculated as if there were no reduction in monthly benefits arising from the loan made to the husband. On the other hand, the wife’s share of the husband’s benefit was to be affected by the husband’s election to provide joint and survivor benefits to his second wife.
A QDRO can convey only those rights to which the parties stipulated as a basis for the judgment. If a QDRO is inconsistent with the provisions of a stipulation or judgment of divorce, courts possess the authority to amend the QDRO to accurately reflect the provisions of the stipulation pertaining to the pension benefits. Thus, a court cannot issue a QDRO encompassing rights not provided in the underlying stipulation, nor one that is more expansive than the stipulation.
Although the stipulation in this matter failed to identify the party who would be responsible for submitting the proposed QDROs to the Supreme Court, it is generally the responsibility of the party seeking approval of the QDRO to submit it to the court with notice of settlement. Here, with respect to the husband’s pension, Article XV of the parties’ stipulation provided that “at the time that the Husband retires the Wife shall receive her proportionate share of the pension. A Qualified Domestic Relations Order shall be prepared in the course of any divorce and forwarded to the Court for signature and filed with the Husband’s employer.”
The plain language of the stipulation indicated that the wife’s entitlement to a distributive share of the husband’s pension was to be triggered at the time of the husband’s retirement. While the stipulation did not explicitly direct the wife to prepare and submit her proposed QDRO, a logical reading of the relevant language led to the conclusion that she was to prepare and submit, to the Supreme Court, a proposed QDRO with respect to the husband’s pension, and provide a copy to his employer, and the husband was to prepare and submit, to the Supreme Court, a proposed QDRO with respect to the wife’s pension, and provide a copy to her employer. The husband prepared and submitted his proposed QDRO to the court, and provided the wife’s employer with a conformed copy, but the wife did not initially do the same with respect to her proposed QDRO. Had the wife prepared a proposed QDRO, submitted it to the court for signature, and provided a conformed copy to the FDNY or the FDNY pension plan shortly after the judgment of divorce was finalized, her right to receive her distributive share of his pension would have been secured regardless of any delay in learning of the husband’s retirement. The QDRO would have been on file with the husband’s employer and, upon his retirement, the pension administrator of the FDNY pension fund would have immediately begun making payments to the wife of her proportionate share of the husband’s pension benefits.
Despite the wife’s delay in submitting a proposed QDRO to the Supreme Court, the Second Department rejected the husband’s contention that the wife was not entitled to the arrears in pension benefits that accumulated between March 1, 2008, the date that the husband retired from the FDNY, to March 26, 2013, the date that the Supreme Court signed the wife’s proposed QDRO.
While an independent contract action to enforce a distributive award in a matrimonial action is governed by a six-year statute of limitations, as a QDRO is derived from the bargain struck by the parties, there is no need to commence a separate, plenary action to formalize the agreement. An application or motion for the issuance of a QDRO is not barred by the statute of limitations.
Here, the retiring spouse was entitled to windfall because the spouse delayed the submission of the QDRO. The QDRO here in dispute was to be modified to reflect the wife’s entitlement to her distributive share of the husband’s pension, from March 1, 2008, until March 26, 2013.
The Second Department also noted that there was no requirement under 22 NYCRR 202.48 or otherwise that proposed QDROs be submitted within 60 days of the execution of a stipulation of settlement of a matrimonial action or the issuance of a judgment of divorce. QDROs are merely procedural mechanisms for effectuating payment of a spouse’s share of the other spouse’s pension.
The wife contended that the QDRO should contain a provision calculating her proportionate share of the husband’s pension on its maximum value, that is, without reference to the husband’s taking out a loan against the pension or his provision of survivor’s pension benefits to his second wife. This contention appeared to be an issue of first impression for the Second Department.
The appellate court concluded that the wife’s share must be calculated with reference to the reduction in benefits resulting from the husband’s provision of survivorship benefits to his second wife, but agreed with the wife that her share should be calculated without reference to the reduction in benefits resulting from the loan made to the husband.
The stipulation was silent as to how the wife’s proportionate share of the marital portion of the pension was to be valued, and it did not contain any expressed prohibition against the husband obtaining a loan against the pension or providing a survivor benefit to a future spouse.
It is improper for a court to issue any qualified domestic relations order that encompasses rights that were not provided in the underlying stipulation. Here, inasmuch as the stipulation did not contain any provision directing that the wife’s share of the husband’s pension benefits be calculated on the maximum value that the pension would have had without the husband’s provision of post-divorce survivor benefits to his second wife, the Supreme Court, and this Court, were without authority to grant the wife the greater rights she seeks. The wife was not entitled to a recalculation of the husband’s pension benefits so as to negate the survivorship benefit bestowed by the husband on his second wife. The reduction in the monthly payouts occasioned by the provision of survivorship pension rights to the husband’s second wife was not prohibited by the negotiated terms of the stipulation, and the detriment arising from the reduction in the payout amount was mutually shared by both the wife and the husband. Accordingly, the effect occasioned by the husband’s provision of survivorship benefits to his second wife should be treated no differently than had the husband retired early, accepted a retirement incentive, worked additional years, or been subject to an employer’s lawful amendment of the underlying pension plan.
The appellate court took a different view, however, with respect to the loan that was secured by the husband against his pension, which was not repaid at the time of his retirement, and which reduced the amount of monthly payments to both parties, and concluded that the wife’s Majauskas share may not be reduced by virtue of the loan. The reason was that, with respect to the loan, the parties did not receive any mutual benefit from the husband’s receipt of the loan proceeds. The loan proceeds were paid to and used solely by the husband, yet the wife, who derived no benefit from the loan proceeds, was being asked to share in its cost by virtue of her receipt of reduced monthly payments for so long as the pension benefits are paid to her.
The circumstances under which the husband secured the loan were distinctly different from those where an employee takes early retirement, works additional years, elects a survivorship benefit, accepts a retirement incentive package, or is subject to changes to the pension imposed by the employer, as, in all of those instances, the gains or losses are mutually shared by the retiree and by the ex-spouse receiving a marital share of the benefits.
The husband’s loan, by contrast, was not grounded in mutuality, as the loan proceeds that reduced the value of the husband’s pension were not shared with the wife. Indeed, were the court to hold that spouses may take loans against their pensions and retain 100% of the loan proceeds, and thereby reduce their obligation to ex-spouses, employees might be given the incentive to unilaterally strip their pensions of value at the partial expense of their ex-spouse. The reasonable expectations of the parties, as discerned from their stipulation, cannot be construed as permitting the consquences urged by the husband, where both parties incur a reduction in the monthly payout of pension benefits by virtue of a loan, but the husband derives 100% of the benefit of the loan proceeds.
Finally, the parties disputed whether, if arrears were awarded to the wife via the QDRO, an evidentiary hearing was required to resolve the amount, duration, and tax implications of the arrearage payments. Since the court denied the wife’s request to base her distributive share of the husband’s pension upon its value prior to its reductions by survivorship benefit, there was no need for an evidentiary hearing.
The Second Department found that the best, least complicated method for the husband’s payment of pension arrears was for the pension administrator of the FDNY pension fund to pay to the wife, on a prospective monthly basis, the monthly payments that the wife should have received from March 1, 2008, to March 26, 2013, in addition to those payments that she will receive in the normal course of applying the terms of the QDRO.
In light of the foregoing, the QDRO was modified by adding thereto provisions directing the plan administrator of the New York Fire Department Pension Fund to compute the wife’s share of husband’s pension based upon what the value of the pension would have been without reduction for the proceeds of a loan tendered to the husband by the New York Fire Department Pension Fund, and to tender to the wife, as alternate payee, her proportionate share of the husband’s retirement benefits that accrued from March 1, 2008, to March 26, 2013, in 61 equal monthly payments, until the arrearage was paid in full.
Glass Krakower, LLP [John Hogrogian] of counsel to Magda M. Deconinck, of Manhattan, of counsel), represented the ex-wife. Kelli M. O’Brien, of Goshen, N.Y., represented the husband.