Tuesday, December 18, 2007

ERISA meets Prenuptial Agreements

Not too often will you see federal cases discussed on this blog. The federal courts have little to do with family, but this article from Pension Protection Blog is different.

Prenuptial Agreement Not Effective for Waiving Benefits Where Participant Dies Before Filing for Divorce describes what happens when a prenuptial agreement (a state law creation) meets ERISA (Employee Retirement Income Security Act, a federal law).

"When a participant dies before filing for legal separation or divorce from their spouse, who is entitled to the participant’s benefits under the plan? The Sixth Circuit Court of Appeals recently addressed this situation in Greenebaum Doll v. Sandler, Nos. 06-6494, 06-6496 (6th Cir. Dec. 3, 2007)."
The original post contains this description of the parties' prenuptial agreement:

Before the participant and spouse were married, they executed a prenuptial agreement which “waive[d] and release[d] any claim, demand or interest in any pension, profit-sharing, Keogh or other retirement benefit plan qualified under ERISAS and the Internal Revenue Code of the other party and agree[d] to execute any documentation to verify and confirm this fact with the administrator of such plan.”

And how the fight started:

After the participant died, the spouse and the participant’s children from a previous marriage asserted conflicting claims for the benefits held by the plan. The children filed a cross-claim against the spouse, asserting that she breached the prenuptial agreement by claiming an interest in the participant’s retirement assets and by failing to execute any instrument or document necessary to waive her interest in the participant’s benefits.

I know enough about ERISA to be scared of it. This is the 900 pound gorilla, and the court's decision does not surprise me:

The Sixth Circuit upheld the district court’s decision awarding the participant’s benefits under the retirement plan to the spouse. The Sixth Circuit reasoned that a prenuptial agreement by itself does not satisfy ERISA’s spousal consent requirement, and the language in this prenuptial agreement specifically did not satisfy ERISA’s spousal consent requirement. Therefore, the spouse was entitled to the participant’s retirement assets as the default beneficiary under the terms of the plan. Even though the participant and spouse signed a prenuptial agreement calling for the spouse to waive any claim to the retirement benefits if they divorced, the prenuptial agreement did not preclude the spouse from receiving the retirement benefits if the participant died first.

I am not aware of any similar case in the Seventh Circuit (the federal circuit which covers Indiana), but I cannot imagine a different outcome. I suggest if one of the parties waives an interest in an ERISA pension then the parties must also follow that the statute's requirements for waiver.

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