Settlement Agreement Results in Waiver of Spousal Interest in Retirement Account

December 29, 2008 | Roger McEowen

 

When a divorce occurs and property is split between the ex-spouses, interesting issues can arise.  The property division can be important for numerous reasons, not the least of which involves tax issues associated with particular assets in the hands of each former spouse.  Sometimes a question can arise as to spousal rights to property, as it did in this case.

Here, a married couple divorced in late 2005.  At that time, they entered into a “stipulation of settlement.”  The district court approved the stipulation and made it a part of the dissolution decree.  At the time of the divorce, the husband owned a retirement account that named the wife as the beneficiary.  Neither the stipulation nor the decree mentioned the account, but the district court said the account belonged to the husband based on the stipulation that said “each party shall keep as their own, free and clear of any claims of the other party, all property in their individual name.”  The husband died about ten months after the divorce and, at that time, his ex-wife was still named as the beneficiary of the account.  That raised a question concerning the ownership of the funds in the retirement account upon the husband’s death.  Did the funds belong to the ex-wife as the surviving beneficiary, or were the funds part of the deceased husband’s estate? 

In accordance with the survivorship feature of the account, the ex-wife took possession of the funds in the account.  The husband’s estate filed a petition to recover possession of the account, and the district court entered an order preventing the ex-wife from selling, encumbering, transferring, possessing or cashing in the funds in the account.  At the subsequent trial, the court determined that the ex-wife had waived any interest she had in the retirement account by executing the stipulation. 

On appeal, the court noted that Iowa caselaw holds that a divorce or dissolution does not, by itself, void the designation of a named spouse on a life insurance policy or retirement account.  So, the issue boiled down to whether the stipulation that the ex-wife signed was enough to wipe out her interest in the retirement account.  The court determined that it was because the stipulation agreement evidenced the intent of the couple to “wipe the slate clean” – the stipulation said it constituted a “full and complete settlement of all claims of any kind, of either party against the other arising out of this action.”  The court believed that was comprehensive language and that the trial court ruling was correct.

Here’s the kicker – the wife’s lawyer drafted the stipulation of settlement.  It’s probably a safe bet her lawyer is not in her “fav five.”  In re Estate of Carter, 760 N.W.2d 211 (Iowa Ct. App. 2008).

Note:  On January 26, 2009, the U.S. Supreme Court held that funds contained in an employer-established pension plan that is governed by The Employee Retirement Income Security Act of 1974 (ERISA) where the employee's spouse is named as beneficiary (and no contingent beneficiary is named), but where the divorce decree divested the spouse of her interest in the employer-established plan, belong to the ex-spouse upon the employee spouse's death because the waiver contained in the divorce decree is an assignment or alienation of the ex-spouse's interest which ERISA bars (29 U.S.C. Sec. 1056(d)(1)).  Qualified Domestic Relations Orders are exempted from the bar on assignment or alienation, and ERISA also does not govern private retirement accounts not channeled through an employer.  Thus, it appears that the Supreme Court's opinion would have no effect on the Iowa court's decision.  Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, et al., 129 S. Ct. 865 (2009).