Potts v. Potts

• Citation: 790 A.2d 703,142 Md. App. 448
• Decision Date: 01 February 2002
• Docket Number: No. 2833,2833
• Parties: Beverly POTTS v. Robert F. POTTS.
• Court: Court of Special Appeals of Maryland

790 A.2d 703

142 Md. App. 448

Beverly POTTS v. Robert F. POTTS.

No. 2833, Sept. Term, 2000.

Court of Special Appeals of Maryland.

February 1, 2002.

Kimberly Fleming (Laura V. Bearsch and Love, Fleming, Bearsch & Attanasio, LLC on the brief), Bel Air, for appellant.

Paula J. Darrah (Warfield, Meredith & Darrah, P.C. on the brief), Severna Park, for appellee.

Argued before SALMON, KENNEY, and KRAUSER, JJ.

KENNEY, Judge.

This case arises from the entry of a Qualified Domestic Relations Order ("QDRO") by the Circuit Court for Anne Arundel County after the issuance of a judgment of absolute divorce ending the marriage of appellant Beverly Potts ("Wife"), and appellee, Robert F. Potts ("Husband"). Wife raises two questions on appeal:

I. Did the lower court err in denying the appellant survivor benefits under the applicable qualified domestic relations order notwithstanding the award to appellant of one-half of the marital portion of appellee's pension?

II. Did the lower court err in determining that if the appellee remarries, he may give survivor benefits to his new spouse, even if that action reduces appellant's share of appellee's pension?

We find no error in the court's decision to deny Wife survivor benefits. To the extent that the trial court held that Husband could reduce Wife's share of the pension by giving survivor benefits to someone other than Wife, the trial court erred. The value of the pension in this case is to be determined prior to any election of survivor benefits for the benefit of a third party. The cost of such election shall not reduce Wife's share of the pension.

FACTUAL BACKGROUND

Husband and Wife were married on May 5, 1973. Their two children were emancipated by age when Wife filed for divorce on July 14, 1999. Husband filed a counter-complaint for divorce on August 11, 1999. A hearing was held on June 12-14, 1999, and, on June 28, 2000, the court granted a judgment of absolute divorce. The judgment of absolute divorce contained, among other provisions, an order "that the husband's pension is divided on an if, as and when basis, and the 401K is to be divided equally, counsel to ascertain the proper amount." No mention was made by the court in either the judgment of absolute divorce or by the parties in the transcript of the divorce proceedings provided to us of the need to prepare a QDRO.¹ At this point, the docket entries reflected that the case was "closed," although it was reopened when Husband filed a motion to alter and amend with respect to the court's ruling on the division of the parties' personal property.

In addition to the issue raised by Husband's motion to alter and amend, a problem was developing with respect to a QDRO. Wife's attorney prepared a proposed QDRO, but Husband balked over language that would require him to elect survivor benefits when he drew his pension and to name Wife as "surviving spouse." The parties returned to court for a hearing on January 26, 2001. The court issued its opinion on the QDRO on February 5, 2001, amending that opinion on February 12, 2001, to correct the dates of the hearing and the judgment of divorce. The amended opinion states:

This case raises important questions concerning QDROs.

We heard the matter on June 12, 2000 and granted the divorce on June 27, 2000. We awarded one-half of the marital portion of the QDRO to Ms. Potts, which was what she asked for.

There have been many disputes over the QDROs, which now come down to two points. The first one is whether we can award survivor benefits under the regular "QDRO" to Ms. Potts. She never asked for the benefit by name when the divorce was pending, nor was any motion to that effect filed while the divorce was not final.

Her present counsel argues that an award of one-half of the marital portion of the pension is broad enough to cover survivor benefits. In other words, Mr. Potts wants it excluded because she didn't ask for it, and she wants it included because we didn't deny it.

At first blush the answer seems easy; if you didn't ask for it, you don't get it. However, our research has turned up only one state that has ruled on the matter, namely Texas. In Harvey v. Harvey, 905 S.W.2d 760, the Court of Appeals indicated:

We construe Gary's first point of error to assert that as a matter of law the parties' intent reflected in the original decree was not to grant Patricia survivor benefits. We disagree with this assertion. Although the original decree did not specifically mention "survivor benefits", it did expressly recognize Patricia's marital rights in the 3-M pension plan, awarded Patricia "45 per cent of the present value of [Gary's] accrued benefits", and state that Patricia "may elect any form of payment of her portion of the available benefits." n4² In the absence of evidence that the 3-M plan treated survivor benefits as being separate and distinct from "retirement benefits", and in the absence of any evidence of the parties[`] intentions in that regard, we conclude that Gary has not demonstrated as a matter of law that the parties intended for the decree granting Patricia forty-five per cent of Gary's "retirement benefits" to exclude survivor benefits from that grant. Point of error is overruled.

In Maryland, survivor benefits are not a matter of right but of the discretion of the Court, Matthews v. Matthews, 331[336] Md. 241. The Court has discretion in determining the formula to be used, Caldwell v. Caldwell, 103 Md.[App.] 452

, and can determine who pays for the benefit. All of this indicates that survivor benefits are not an automatic tag-along to the division of the pension, but must be the subject of a request. We disagree with the Texas Court.

It is little secret that the developing field of QDROs, and like orders is causing much difficulty. A QDRO is asked for, or agreed upon, and the details are not ironed out until the order for divorce is final, and any change is difficult, but not impossible. For this reason we are seriously considering raising the question of survivor benefits sua sponte in the future.

The second issue is whether Mr. Potts can, if he remarries, give survivor benefits to his new wife which will have the effect of reducing his first wife's share somewhat.³

This is an "if, as and when" pension. We do not believe Ms. Potts has any right to a specific number, only a share of the amount of the pensions actually received. Again, the parties are free to contract for this result.

Counsel shall submit an appropriate QDRO in line with this opinion.

Wife appealed this order on February 28, 2001. On March 12, 2001, the trial court signed and filed the QDRO. Along with the QDRO, it sent a note commenting that "Mrs. Potts filed an appeal. This may very well have been premature." Mrs. Potts then timely appealed the QDRO on April 10, 2001.

DISCUSSION

I.

Wife's first argues that the issue of survivor benefits is part of the overall inquiry into pensions. Consequently, she argues, the court erred by stating that survivor benefits "are not an automatic tag-along to the division of the pension, but must be the subject of a request." Husband argues that Wife should have raised this issue in an appeal from the judgment of absolute divorce, which he argues was a final judgment. At oral argument, Wife responded to this argument by encouraging us to hold that a judgment of absolute divorce is not final until the QDRO is entered.

A. ERISA and QDROs

To frame our discussion, we begin by reviewing the applicability of Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (1999)⁴ ("ERISA"), to pensions plans and the importance of QDROs in divorce proceedings in which a pension plan subject to ERISA is an article of marital property. ERISA was first enacted in 1974, and the employee benefit plans covered by ERISA are set forth in 29 U.S.C. § 1003, which reads, in pertinent part:

(a) Except as provided in subsection (b)⁵ or (c)⁶ and in sections 201, 301, and 401 [29 U.S.C. §§ 1051, 1081, and 1101],⁷ this title shall apply to any employee benefit plan if it is established or maintained—

(1) by any employer engaged in commerce or in any industry or activity affecting commerce; or

(2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or

(3) by both.

As previously explained in Jenkins v. Jenkins, 112 Md.App. 390, 397 n. 3, 685 A.2d 817 (1996), cert. denied, 344 Md. 718, 690 A.2d 524 (1997), "ERISA provisions generally prevent the assignment or distribution of the proceeds of an ERISA qualified plan to third parties." See also Rohrbeck v. Rohrbeck, 318 Md. 28, 30-36, 566 A.2d 767 (1989)

. With its enactment, Congress stated that ERISA was to "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in" 29 U.S.C. § 1003(a). 29 U.S.C. § 1144(a).

The combination of the anti-alienation provision in [the U.S. Labor and Tax Codes] and the preemption provision of ERISA § 514 [29 U.S.C. § 1144] eventually raised a question, apparently not anticipated by Congress, as to the validity of orders entered in State domestic relations proceedings requiring that pension benefits be paid to a person other than the plan beneficiary.

Rohrbeck, 318 Md. at 32, 566 A.2d 767.

In light of these concerns, Congress, in 1984, amended ERISA to relax the anti-alienation provisions so that state courts could enter orders allowing benefits to be paid to someone other than the plan beneficiary. Rohrbeck, 318 Md. at 32-34, 566 A.2d 767. 29 U.S.C. § 1056(d);⁸ 26 U.S.C §§ 401, 414.⁹

A domestic relations order meeting certain qualifications (hence the QDRO moniker) for support or distribution of property may, however, require the allocation of all or part of a plan participant's benefits to an alternate payee. Use of this ERISA exception allows state trial courts effectively to alter title to otherwise untouchable pension plans without...