Financial advisors with clients who have been awarded pension rights in a divorce should follow up to see if the proper procedures to claim those rights have been followed; if not, advisors should urge immediate action.
Failure to take action may result not only in a clients loss of pension and survivor benefits but also in steep legal fees in any attempt at a belated claim.
A new decision by Minnesotas Supreme Court effectively stripped a former spouse of pension benefits awarded to her in a divorce. The reason: the ex-wife neglected to file a court order until it was too late.
The roots of this case go back to 1993, when Gary and Patricia Langston ended their marriage of nearly 30 years. Gary was a participant in a union pension fund, and the divorce settlement awarded Patricia a half-interest in any future pension payments. Gary also was ordered to name Patricia as the survivor beneficiary. In order to enforce these claims, Patricia needed to serve a domestic relations order on the pension plan, as required by the Employee Retirement Income Security Act, or ERISA, a federal law.
However, Patricia didnt follow through on the court order. Gary eventually remarried and retired, in 2004. At that time he chose to take his pension as an annuity, naming his current wife as the beneficiary of a survivor annuity, if Gary were to die first. Patricia eventually served a domestic relations order on the pension plan in 2005, shortly before Garys death.
After the pension plan denied her request to receive Garys pension benefits, Patricia continued her efforts in court. The case went up and down the Minnesota court system, from district court to appeals court to the states Supreme Court. In late March, the Supreme Court ruled against Patricia.
We acknowledge that our decision leads to a harsh result in this case and that it may lead to a harsh result in other cases as well, the court stated. But [Patricia] Langston and others in her position must act with diligence to preserve their state-law rights in accordance with ERISAs statutory scheme. Essentially, Minnesotas Supreme Court held that surviving spouse benefits ordinarily vest in a participants spouse when the participant retires and begins receiving benefits, so Patricia failed to act in time to preserve her rights.
In this case, Patricia also lost her bid for an award of over $55,000 in attorney fees and costs. For financial advisors representing a divorced individual, the message is to be sure that their client doesnt procrastinate in putting the proper paperwork in place.