Divorce decree ineffective to waive rightsArticle added by Sonya King on March 27, 2009

Sonya King

Joined: October 01, 2008

The Supreme Court recently ruled in favor of an ex-spouse in a dispute over the distribution of funds after a plan participant died. The Court considered whether the former spouse waived her rights to survivor benefits under a divorce decree that was not a qualified domestic relations order (QDRO). The Court found that, while an ex-spouse who is a designated beneficiary could waive benefits without a QDRO, the divorce decree was ineffective as a waiver in this case because it did not conform to the plan's procedures for a beneficiary to waive benefits.

William Kennedy worked for DuPont and participated in its savings and investment plan. He married Liv Kennedy in 1971, and in 1974 he designated her as beneficiary to receive plan benefits in the event of his death. Mr. and Mrs. Kennedy divorced in 1994. The divorce decree specifically stated that Mrs. Kennedy was divested of all rights related to any retirement plan for Mr. Kennedy through his employer. However, Mr. Kennedy never revoked or updated his beneficiary designation following the divorce. He died in 2001. DuPont's plan administrator paid the benefits to Liv Kennedy, in accordance with the 1974 beneficiary designation form. Mr. Kennedy's estate sued the plan for payment, claiming that the Mrs. Kennedy waived her rights as beneficiary under the 1994 divorce decree.

The Fifth Circuit ruled in Mrs. Kennedy's favor, saying that the divorce decree was not a QDRO. However, other circuits have held that a divorce decree could be used to waive benefits, even if the decree was not a QDRO.

The Court first considered whether a divorce decree that does not satisfy the requirements for a QDRO could effectively waive a beneficiary's rights. The Court found that since a waiver is not an assignment or transfer of benefits, a waiver could be effective even though it does not satisfy the requirements for a QDRO.

The Court then considered whether a beneficiary's waiver could be given effect where it is inconsistent with the plan documents. In this case, the plan included specific provisions for beneficiaries to waive or disclaim benefits. The Court found that the ex-wife did not disclaim her rights as a beneficiary by following the plan provisions permitting a disclaimer and found that the divorce decree was ineffective to waive the ex-wife's rights.

The Court did leave open the possibility that the estate could bring suit against the ex-spouse to recover the payments. Prior cases have held that that a prior contractual agreement to forfeit funds may be enforceable against an individual without violating ERISA. Once money is paid to a beneficiary, it loses its ERISA protection.

This case points out that plans should continue to encourage their participants to update beneficiary designations upon certain life events, especially upon the marriage or divorce of a participant.

Kennedy v. Plan Administrator, No. 07-636 (U.S. January 26, 2009).

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