Family Law Case Review 2/15/17

Case: Jerry Ehman v. Mary Ehman

Case Summary by Mike Kohlhaas, Bingham McHale LLP

HELD: Where a Decree awards a party a sum certain from the other party’s 401(k) account, the alternate payee bears the risk of loss that market decline during her delay in implementing the retirement division could leave the retirement account with less than the sum certain awarded in the Decree. If that occurs, then the alternate payee is entitled to a pro rata share of the reduced retirement account value.

FACTS AND PROCEDURAL HISTORY: Husband and Wife were married for 20 years, and then divorced in 2007. At the divorce, Husband had a General Motors 401(k) plan with a balance of $34,292. The parties’ Decree provided that Wife “shall receive a QDRO for thirty one thousand three hundred and twenty two dollars” from Husband’s 401(k), with Husband retaining the balance. The decree had no provision for who would prepare the QDRO.

Following the Decree, the value of Husband’s 401(k) dropped substantially due to a decline in GM stock value. Five months after the Decree was issued, Wife submitted, and the trial court approved, a QDRO that tracked the Decree. However, upon submission to Husband’s employer, Wife was advised that insufficient funds existed in the 401(k) to implement its articulated allocation.

In response, Wife filed a motion in the trial court, essentially seeking to enforce the Decree. Wife’s best information was that Husband’s 401(k) had a value of only $20,432. Following a hearing, the trial court entered a judgment in favor of Wife, and against Husband, in the amount of $31,322 — the same amount originally intended to be transferred by QDRO from Husband’s 401(k). Husband appealed.

On appeal, Husband argued that the trial court should have treated its retirement award essentially as a pro rata percentage, rather than a sum certain; this way, Husband and Wife were sharing the risk of any market losses between the Decree and the QDRO’s implementation.

The Court of Appeals concluded that “[w]hen a divorce decree does not specify which party must prepare a QDRO, the risk of loss caused by delay in the issuance of the QDRO should be borne by the party best situated to avoid the risk. . . . In this case, [Wife] was best situated to avoid the risk of loss…”  As a result, the trial court erred by awarding Wife a judgment for the full, originally-intended retirement transfer. The Court of Appeals further ordered that, on remand, the trial court should divide what was left of the 401(k) pro rata (that is, 31/34 to Wife).

Reversed and remanded.

[Editor’s note — One question that this case does not answer is: what should be the outcome if the 401(k) balance declines dramatically between decree and QDRO implementation, but even after the decline, there is still an adequate balance to transfer the sum certain set forth in the Decree? For example, if the Decree awarded Wife the sum certain of $30k, but between Decree and QDRO, Husband’s 401(k) decreased in value from $50k to $35k. Does Husband have an argument that the Wife should receive only a pro rata share of the decreased account balance, rather than the full $30k? Also, this case may prompt reconsideration of the wisdom of sometimes using a sum certain retirement allocation in a decree (as opposed to a percentage of the account subject to account gains/losses). Under the reasoning of this case, alternate payees who are set to receive a sum certain seem at risk for having to share in account losses, but not share in account gains.]

To view the text of this opinion in its entirety, click here: Jerry Ehman v. Mary Ehman

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