What happens when, under a post-divorce QDRO, retirement benefits are paid to the “wrong” beneficiary? The Appellate Division, Second Department, in its March 6, 2019 decision in Schatz v. Feliciano-Schatz held that the proceeds may be reached by the correct beneficiary
In 1998, Susan (W1) and Aloysius (H) were divorced. In February 2004, H married Carmen (W2). In December 2006, H retired from his employment and began receiving benefits from his New York Stock Exchange Retirement Plan. H elected a joint and survivor annuity with W2 named as joint annuitant. In November 2011, H and W2 were divorced.
In June, 2012, H and W2 entered into an amendment to their 2011 stipulation of settlement and judgment of divorce. Each of them waived their rights to each other’s retirement plans. The amendment also indicated that in the event that either of the parties received payments in contravention of the agreement, the benefits would be turned over to either a beneficiary designated by the other party or to the other party’s estate.
Subsequent to executing the amendment, W2 remained the only named beneficiary on H’s retirement plan. On May 21, 2013, W1 remarried H, and 9 days later on May 30, 2013, H died. Upon H’s death, benefits were paid out to W2 as the named beneficiary under H’s retirement plan.
W1 (now W3) and the administrator of H’s estate (the plaintiffs) commenced this action to recover the proceeds. They alleged that the plaintiffs were entitled to the decedent’s retirement benefits, as W2 had waived her rights to the retirement benefits pursuant to the amendment. The plaintiffs moved for summary judgment, and W2 (the defendant) cross-moved for summary judgment dismissing the complaint.
Orange County Supreme Court Justice Maria Vazquez-Doles granted W2’s motion and dismissed the complaint. The plaintiffs appealed. The Second Department, in effect, reversed, granting the plaintiffs’ motion.
Although ERISA prohibits the assignment or alienation of benefits while they are held by the plan administrator, once they are paid to the beneficiary, the funds are no longer entitled to that protection. The appellate court agreed that W2 validly waived her entitlement to the subject retirement benefits. The amendment stated that H and W2 waived any and all claims that “he or she may have or may hereafter acquire or possess to share in any pension, profit-sharing, IRA, 401(k) plan or any other retirement or deferred compensation plan established for the other party.” That waiver language was sufficiently explicit to effectuate a valid waiver of benefits under the subject plan. Moreover, contrary to W2’s contention, the language of the waiver requiring that payments received in contravention of the waiver be turned over to a designated beneficiary or the estate of the decedent does not violate the anti-alienation provisions of ERISA.
The Second Department also noted that W1 failed to demonstrate that she was entitled to a nunc pro tunc QDRO; that she had an existing interest in the subject pension benefits prior to the decedent’s death. While a QDRO may be obtained after the death of the plan participant, a QDRO only renders enforceable an already-existing interest.
Comment: Check your agreement boilerplate for the language in this decision.
Richard M. Mahon II, of Catania, Mahon, Milligram & Rider, PLLC, of Newburgh, represented W1. Mark D. Stern, of Goshen, NY, represented W2.