Tenth Circuit Holds Divorce Decree Meets QDRO Requirements

In Festini-Steele v. ExxonMobil Corporation , No. 20-1052 (10th Cir. 2021), the US Court of Appeals for the Tenth Circuit recently held that a divorce decree can satisfy the ERISA requirements for a qualified domestic relations order (QDRO). As a result, the court determined that a deceased employee’s former spouse was entitled to his life insurance proceeds.

Under ERISA, plan benefits are generally not assignable. As federal law, ERISA supersedes any conflicting state law. An exception to the ERISA anti-assignment principle is a QDRO, which allows for a participant’s benefits to be payable to a spouse or dependent pursuant to a divorce or separation.

For a state court order to qualify as a QDRO, certain information must be included. Specifically, the order must include the name and address of the participant and alternate payee(s) (i.e., the spouse or dependent with a right to plan benefits), each plan to which the order applies, the amount or percentage of the participant’s benefits to be assigned (or the way such an amount would be determined), and the number of payments or period to which the order applies.

In this case, Billy Steele and Stela Festini-Steele were divorced in Colorado in 2014. Their separation agreement (which was incorporated in the divorce decree) required Billy, who worked for ExxonMobil, to maintain life insurance with Stela as beneficiary until the couple’s minor daughter, A.S., attained age 18. After the divorce, Billy remarried. In 2017, he died in a car accident; his daughter A.S. was four years old at the time.

Following the death, Stela contacted ExxonMobil, provided a copy of the divorce decree, and requested the benefit from Billy’s ExxonMobil life insurance plan. ExxonMobil denied the request and informed Stela that she was not a named plan beneficiary. In the denial letter, ExxonMobil determined the submitted divorce decree did not meet QDRO requirements because it failed to specify the insurance amount or benefit plan name.

Stela filed an ERISA civil enforcement claim against ExxonMobil. The district court ruled that the divorce decree was not a QDRO because it failed to identify a plan, the life to be insured or the named beneficiary. Additionally, in the district court’s view, the order did not clearly specify the amount or percentage of the participant’s plan benefits to be paid.

On appeal, the Tenth Circuit’s review focused upon the plan administrator’s denial of Stela’s claim (as opposed to the district court’s prior determination). Accordingly, the court discussed arguments raised by ExxonMobil during litigation, but emphasized that their ruling was based upon the issues cited in the plan’s administrative records.

In the opinion, the Tenth Circuit first addressed the requirement that a QDRO clearly specify the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee. The court determined that the divorce decree met this requirement by directing Billy to designate his former spouse as beneficiary and not identifying other beneficiaries, thus indicating she was the sole beneficiary and entitled to the full benefit.

The Tenth Circuit then considered the issue of whether the plan subject to the order was clearly identified. Here, the court highlighted language in the divorce order stating that “[t]he parties agree to the following terms relating to all life insurance accounts.” This provision was interpreted to require the participant to name his former spouse as beneficiary of all life insurance plans or policies insuring his life until their daughter A.S. turned eighteen.

Finally, the court noted that although the parties’ separation agreement warned that a separate QDRO may be necessary with respect to retirement plan benefits, this admonition does not preclude a plan administrator from determining that a DRO within which a separation agreement is incorporated is a QDRO.

As a result, the Tenth Circuit held the terms of the separation agreement incorporated within the divorce decree met the requirements of a QDRO. The district court’s judgment was reversed and the case remanded for entry of judgment in favor of the former spouse.

ERISA plan sponsors of group life insurance benefits, particularly those within the jurisdiction of the Tenth Circuit, should be aware of this ruling. Employers may want to review their QDRO procedures, to determine if any modifications are advisable.

Festini-Steele v. ExxonMobil Corporation »