Friday, December 23, 2005

Case Law Development: Domestic Relations TROs as QDROs and Constructive Trust Remedies

The United States District Court for the District of Kansas spells out very nicely what makes a domestic relations order a qualified domestic relations order under ERISA in a case in which wife had filed for divorce and obtained a temporary restraining order prohibiting, among other things, husband from changing his life insurance beneficiary.  After husband was served with the order, he changed his life insurance beneficiary to name his father as primary beneficiary.  He then died before the divorce was final. 

In a three-way suit between husband's father, wife, and the insurance company, the court determined that ERISA preempted the decision as to whether husband's change of beneficiary was effective.  The court found that "the TRO has a prohibited connection with the Plan because it interferes with the objective of ERISA for uniform administration."

To be exempt from preemption, the TRO would have had to qualify as a QDRO.  The parties conceded that the "TRO did not contain all of the required information set forth in § 1056(d)(3)(C) and was not provided to the plan administrator. Therefore, the TRO is not exempt from preemption." Thus, the court granted summary judgment to husband's father on the issue of who was the beneficiary under the policy.

Wife then asked that the court impose a constructive trust on the insurance proceeds.  The court looked to decisions of other circuit courts of appeals and held that "a district court has authority to impose a constructive trust on welfare plan benefits after they are released to the proper beneficiary under ERISA."   The court then reviewed Kansas law regarding constructive trusts and concluded that the required elements were met.  In particular the court found that husband's change of beneficiary in violation of the TRO was an actual or constructive fraud upon the court.  The  court thus granted the constructive trust to wife.

Donald. Irwin v. Principal Life Ins. Co., 2005 U.S. Dist. LEXIS 34077 (December 16, 2005)

http://lawprofessors.typepad.com/family_law/2005/12/case_law_develo_29.html

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