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Careful QDRO Crafting Is Critical

A recent case from Kentucky illustrates the importance of careful drafting of the terms of a qualified domestic relations order (“QDRO”). In Braehler v. Ford Motor Co., U.A.W. Retirement Plan, the court dismissed a claim brought by the second wife of a former Ford employee for a portion of the survivor benefits provided by his retirement plan. As a result of the court’s decision, the first wife will continue to receive the entire survivor’s benefit, even though the retiree designated his second wife as his “surviving spouse” when he elected to take a joint and survivor annuity. This result demonstrates that if the terms of a QDRO are not carefully considered they may create unnecessary litigation and perverse outcomes, even when the intention of the parties is clear. Ronald Braehler was eligible for two retirement benefits under the terms of the Ford Motor Company UAW Retirement Plan: a lifetime benefit and a survivor benefit. When Mr. Braehler and his first wife divorced, in 1994, the Property Settlement Agreement (“PSA”) filed with the family court provided that the pension plan “shall be equally divided between the parties” by execution of a QDRO, “with [the first wife] receiving one-half of the benefits accrued therein from the date of marriage to the date of entry of a final decree distributed at such time as [Mr. Braehler] is eligible to receive same.”

The QDRO, however, stated not only that Mr. Braehler’s first wife was entitled to 50% of the amount otherwise payable to him as of the date of the divorce, but that his first wife was to be treated as “a surviving spouse” under the Plan. The Plan sent a letter to Mr. Braehler and his ex-wife stating that the QDRO was acceptable. The letter also summarized the Plan’s understanding of the terms of the QDRO and, in particular, noted that Mr. Braehler’s ex-wife “is to be treated as a surviving spouse under the Plan.”

Mr. Braehler remarried in 1997. In 2003, he retired and elected to receive his Plan benefits in the form of a qualified joint and survivor annuity (“QJSA”). Mr. Braehler specifically designated his second wife as his surviving spouse under the QJSA.

After Mr. Braehler’s death in 2004, the Plan began paying the entire surviving spouse benefit to the first wife. The second wife filed a claim with the Plan, asserting that she should receive the QJSA benefit that Mr. Braehler had designated in her name, but the Plan rejected her claim.

The second wife then filed a civil suit under ERISA against the Plan Administrator. She conceded that the first wife had a claim to a portion of the surviving spouse benefits; but she again asserted that the Plan Administrator erroneously interpreted the QDRO and should not award the entire surviving spouse benefit to the first wife. Indeed, the terms of the PSA filed in the divorce certainly did not require such an outcome, and Mr. Braehler clearly indicated his intention that his second wife should be his “surviving spouse” for purposes of his portion of the retirement benefits. Because of the posture of the case –with the second wife challenging the Plan Administrator’s interpretation of the QDRO – the court could not evaluate the extrinsic evidence unless it found that the terms of the QDRO were ambiguous. The court found that the QDRO’s terms were not ambiguous, and that the plain terms of the QDRO “require the Plan to pay [the first wife] the entire surviving spouse benefit.” The court acknowledged that the QDRO “references [the first wife’s] treatment under the Plan as that of ‘a’ surviving spouse rather than ‘the’ surviving spouse.” Nonetheless, the court disagreed “that this indicates that [the first wife] was to receive anything less than the full surviving spouse benefit.”

While the facts in this case may be unusual, the salient point is that the courts will often enforce the plain language of a QDRO without regard to extrinsic facts that may point to the opposite outcome. Plan administrators should therefore review proposed QDROs carefully to make sure that the intentions of the parties are as clear as possible in order to avoid surprising outcomes and unnecessary litigation.