Modification vs. Clarification
National Legal Research Group, Inc.)
Attention: the information on this page pertains to the following case analysis: Kelly Vs Kelly. It is recommended to read this case analysis for a full understanding.
The first point of note in the trial court’s decision is its express holding that the reservation of jurisdiction provision quoted above did not prevent the decree from being final. The trial court indicated that the need for a clarifying order was created when the military found the original order to be unclear. It appears, therefore, that the military was concerned that the reservation of jurisdiction provision somehow prevented the original decree from being a final order.
The military’s concern was remarkably out of touch with the reality of divorce practice. Prudent drafters always insert reservation of jurisdiction provisions into every qualified order dividing any form of retirement benefits. These provisions are so essential that their omission in many cases could constitute malpractice. To begin with, the federal government retains unquestioned authority to change the statutory requirements for a qualified order dividing any form of military, civil service, or even ERISA-regulated private pension plan. In the specific context of military retirement benefits, this authority has actually been used several times to make significant amendments to the primary statute giving state courts power to divide military retirement benefits, 10 U.S.C.A. 1408 (Westlaw 2003).
Qualified orders dividing retirement benefits should ideally be entered at the time of divorce. While this ideal is not uniformly met (which is a significant problem in itself), it is met more often than not. In order to provide any practical benefit to the former spouse, however, the qualified order must be enforceable at the time of retirement, which will usually be many years down the road from the divorce case. Because of the long delay between entry and enforcement, the former spouse must confront the risk that the requirements for a qualified order will change in the future. Indeed, this risk exists even in the absence of any statutory or regulatory change. Because of court decisions construing the various qualified order statutes, most drafters use materially different language for a qualified order today than they used 20 or even 10 years ago.
Since Congress clearly intended to permit division of military retirement benefits by state courts (subject to certain requirements), it necessarily also intended that federal law be construed to permit changes in the form of qualified orders. Otherwise, the slightest change in the form requirements (or in construction of those requirements by the courts) could render literally millions of qualified orders unenforceable. For example, if Congress were to decide tomorrow that both parties’ social security numbers must appear in boldface on all qualified orders, state courts must have jurisdiction to amend previous orders to comply with the new requirement.
In a few states, statutes exist giving the courts power to make nonsubstantive changes in qualified orders. E.g., Mo. Rev. Stat. Ann. 452.330(5); Va. Code Ann. 20-107.3(K)(4). In most states, however, the statutes are silent on the subject. Some states with silent statutes have construed state law to permit nonsubstantive changes without express language. E.g., White v. White, 152 N.C. App. 588, 568 S.E.2d 283 (2002), aff’d per curiam, 357 N.C. 153, 579 S.E.2d 248 (2003). See generally Brett R. Turner, Equitable Distribution of Property 6.07 n.173 (2d ed. 1994 & Supp. 2003). These cases often reason that a qualified order is a mere enforcement device, and it can be modified whenever necessary to accomplish the intent of the underlying agreement or divorce decree. The prudent drafter will not rely on these cases, however, especially if one does not yet exist in the state at issue. To make certain that nonsubstantive changes are permitted, it is essential that a qualified order reserve jurisdiction to make those changes.
The author senses that the military felt uncomfortable with the reservation of jurisdiction provision in the original order in Kelly. Since that reservation expressly referred to potential noncompliance with the rules for a qualified order, it was almost certainly aimed at the practical difficulty of establishing and maintaining compliance with the requirements for a qualified order. State law universally rejects substantive modification of property division orders; if permitted, such modifications would quickly overwhelm state courts with after-the-fact domestic litigation. Federal authorities reviewing qualified orders need to understand the broad necessity and inherently limited scope of provisions reserving jurisdiction to make future nonsubstantive changes in qualified orders.
From the viewpoint of the drafter, to avoid expensive rejections of qualified orders, it is important to avoid use of unduly broad language in reserving jurisdiction. To the extent possible, the relevant federal agency or plan administrator must be reassured that no one intends to change the substantive effect of the order years after the divorce.
The line between substantive and nonsubstantive modification, however, can be thin. Events sometimes occur which require a significant modification of a prior order in order to maintain the underlying substantive intent. For example, assume that the husband agrees to pay the wife 25% of his retirement benefits. He then loses 50% of his pension because of his own criminal misconduct. In this situation, surely a state court should be permitted to hold that the wife’s share of the retirement benefits remains unchanged by the husband’s conduct. See Leadingham v. Leadingham, 120 Ohio App. 3d 496, 698 N.E.2d 465 (1997) (husband lost time toward pension when he was fired for drug abuse; trial court did not err by stating wife’s share of pension as a percentage of the benefits husband would have received absent his misconduct); cf. In re Marriage of Beltran, 183 Cal. App. 3d 292, 227 Cal. Rtpr. 924 (1986) (where husband lost his entire pension because of criminal misconduct, husband ordered to make payments equal to what wife’s share of pension would have been). For example, if the husband’s pension was $1,000 per month before his misconduct, the state court should be permitted to order that the wife continue to receive $250 per month, even though the amount of the husband’s benefit dropped. Yet this change increases the wife’s share of the husband’s pension from 25% to 50%. Is this a substantive modification? The author would argue not; the court is merely enforcing the benefits awarded to the wife in the prior order. But this example shows how unusual events can create a need for modification which many would call substantive.
A similar situation, unique to the context of nongovernmental retirement benefits, is a major change in pension plans by the owning spouse’s employer. In a world in which employers are downsizing, merging and even going bankrupt, a change in plans is not unforeseeable. If the new plan pays out benefits in a materially different form, major changes in the language of the qualified order may be needed simply to ensure that the former spouse receives the benefits awarded to her at the time of divorce. Family law attorneys and judges would like to assume that the world is frozen in place between the date of divorce and the date of retirement, but there are many different potential changes which can occur between these dates, particularly when they are 20 or more years apart.
There is no easy way to reassure federal agencies and plan administrators that a qualified order is final, while still retaining the flexibility to enforce the original intent of the order in light of future changes in federal law or significant episodes of misconduct by the owning spouse. In qualified orders dividing military retirement benefits, the author presently uses the following language:
The court retains jurisdiction to enter further orders in this case. Such orders may include, but are not limited to, the following:
A. Any provision which is necessary to obtain or maintain the status of this order as a qualified court order under federal law;
B. Any provision which is necessary to protect the former spouse’s rights in the event that the service member merges or otherwise converts his military retirement benefits into another type of benefits, including but not limited to military disability benefits; veterans’ disability benefits; or retirement or disability benefits under the civil service retirement system or the federal employee’s retirement system; or
C. Any provision necessary to conform this order to the provisions of [the parties’ property settlement agreement, as incorporated into] the court’s final decree of divorce.
This provision shall not be construed to permit modification of the substantive terms of this order, and it shall not prevent this order from being a final order for purposes of federal law.
The bracketed language would obviously be used only in a case which settled by agreement. In addition to the three express bases stated above, the author would also expressly mention any presently foreseeable events which would require a change in the order, such as an intention to take voluntary early retirement or a significant pending change in the terms of a private pension plan.
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National Legal Research Group, Inc.