AVOIDING PITFALLS – IDENTIFYING THE VALUATION DATE

Jones v. Spencer, No. 2013-CA-000522-MR (Ky. App. 2014)
Retirement Assets are Valued at Dissolution Unless the Parties Otherwise Unambiguously Agree

Rendered: February 7, 2014
Not to be Published
Opinion Affirming

The trend in QDRO case law across the country is clear:  A QDRO must be consistent with the benefits assigned by the underlying property settlement agreement and/or divorce decree.  This Opinion is yet another illustrative case of this trend being embraced by the laws of the Commonwealth.

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On January 18, 2013, some twenty years after dissolution, Wife filed a Motion for Entry of a Qualified Domestic Relations Order.  Upon considering the Motion, the trial court determined that the settlement agreement’s provision regarding the division of retirement benefits was ambiguous; specifically finding the phrase “the benefit” subject to more than one interpretation (e.g., the benefit at the time of dissolution, or the benefit at the time of retirement).  The trial court sought to determine the parties’ intent from the agreement as a whole, and applied relevant case law wherein pensions in divorce proceedings are valued as of the date of dissolution.  Also entering into the court’s calculus was its recognition that Husband had continued contributing to the plan for twenty years after the dissolution, during which time Wife remarried.  Ultimately, the trial court sustained Wife’s Motion, but valued the benefits at the time of dissolution.  Wife’s appeal followed.

On Appeal, Wife argued that the trial court erred in fixing the valuation of her former husband’s retirement account as of the date of dissolution rather than his retirement date.  She premised her argument on the language of the parties’ property settlement agreement, contending that the trial court “twisted and turned the English language in a way harking back to Bill Clinton” in reaching its finding of ambiguity.  The relevant portion of the agreement read:

RETIREMENT: Husband acknowledges that he is vested in a Dayton Power and Light Retirement account.  The parties agree that benefit payable [sic] under this plan, upon Husband’s actual retirement thereto, will be payable one-half to Husband and one-half to Wife.

The Court of Appeals recognized that as a general rule, parties in a dissolution proceeding are free to agree to a division of retirement assets that varies from controlling law so long as the terms of the settlement agreement do not run afoul of public policy or otherwise offend the sensibilities of the court.  The Court found that the parties’ agreement was determined to be conscionable at the time of divorce.  The Court further found, in affirming, that the language pertaining to the retirement benefit was indeed ambiguous, i.e., subject to more than one meaning, and that the trial court then, in conformity with applicable case law, appropriately attempted to determine the parties’ intention from the four corners of the agreement.  The Appeals Court agreed with Wife that the parties could have contracted to divide the benefits at retirement, but that to have done so effectively, it must have been done without ambiguity. 

This Opinion observed from the outset that both parties were represented by counsel in the execution of their settlement agreement.  That’s a reminder for me to provide pro-active direction to my colleagues as part of these blog entries, especially after recitation of any QDRO-related case, if for no other reason than because my reader’s anticipatory angst is palatable to me as I write.  So here’s the ‘take home’ for today --

Kentucky case law values retirement benefits at the time of dissolution.  See Armstrong v. Armstrong, 34 S.W.3d 83, 86 (Ky. App. 2000).  However, parties can, of course, agree to a different valuation date, such as the date of actual retirement.  KRS 403.180; see also McCullin v. McCullin, 338 S.W.3d 315, 322 (Ky. App. 2011).  This case, however, makes clear that whatever the valuation date for retirement assets, the determined date must be unambiguously identified in any agreement between the parties.  As a practical matter, when the valuation date is determined at the inception of a case, counsel may then request appropriate documents and account statements.  This can aid in preventing ambiguity in the settlement agreement by the inclusion of more detailed language.

This case also provides an incentive for attorneys to enter the QDRO concurrently with the divorce decree.  When the parties agree to divide retirement assets, a ‘draft’ domestic relations order setting forth all essential terms may be incorporated into the property settlement agreement.  This secures both parties’ interests in negotiations, and can prevent the protracted litigation seen in this case when attempting to enforce the settlement agreement terms through a subsequently drafted QDRO.  (Not to mention the headaches, lost time and money associated with attempting to capture the parties’ intent several months, or even years, after their agreement when later drafting the QDRO).