Filed: Mar. 21, 2002
Latest Update: Mar. 02, 2020
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT _ 01-6072MN _ In re: Ronald J. Nelson * * Debtor * * Ronald J. Nelson * * Debtor - Appellant * * Appeal from the United States v. * Bankruptcy Court for the * District of Minnesota James E. Ramette * * Trustee - Appellee * * Richard Schieffer, and the law firm * of Anderson, Dove, Fretland & * Van Valkenburg * * Creditor - Appellee * _ Submitted: March 6, 2002 Filed: March 21, 2002 _ Before KOGER, Chief Judge, SCHERMER and FEDERMAN,
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT _ 01-6072MN _ In re: Ronald J. Nelson * * Debtor * * Ronald J. Nelson * * Debtor - Appellant * * Appeal from the United States v. * Bankruptcy Court for the * District of Minnesota James E. Ramette * * Trustee - Appellee * * Richard Schieffer, and the law firm * of Anderson, Dove, Fretland & * Van Valkenburg * * Creditor - Appellee * _ Submitted: March 6, 2002 Filed: March 21, 2002 _ Before KOGER, Chief Judge, SCHERMER and FEDERMAN, ..
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United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
____________
01-6072MN
____________
In re: Ronald J. Nelson *
*
Debtor *
*
Ronald J. Nelson *
*
Debtor - Appellant *
* Appeal from the United States
v. * Bankruptcy Court for the
* District of Minnesota
James E. Ramette *
*
Trustee - Appellee *
*
Richard Schieffer, and the law firm *
of Anderson, Dove, Fretland & *
Van Valkenburg *
*
Creditor - Appellee *
____________
Submitted: March 6, 2002
Filed: March 21, 2002
____________
Before KOGER, Chief Judge, SCHERMER and FEDERMAN, Bankruptcy Judges.
____________
KOGER, Chief Judge.
Debtor/Appellant Ronald J. Nelson was awarded an interest in his former
spouse’s ERISA-qualified retirement plan in the amount of approximately $71,000.00
pursuant to a divorce decree and a Domestic Relations Order. After the divorce, but
prior to receiving a distribution from the retirement plan, Nelson filed for Chapter 7
bankruptcy relief and asserted that the interest was either not property of his
bankruptcy estate, or, alternatively, that it was exempt under either 11 U.S.C. §
522(d)(5) or 11 U.S.C. § 522(d)(10)(E). The bankruptcy court ruled that the interest
was property of the bankruptcy estate and was not exempt except in the amount of
$4,525.00, which was the remaining sum available under the wildcard exemption set
forth in 11 U.S.C. § 522(d)(5). Nelson appeals only from the bankruptcy court’s
ruling that his interest in the ERISA-qualified retirement plan was property of the
bankruptcy estate. For the following reasons, we reverse.
Factual Background
Ronald J. Nelson was divorced from Denise Nelson in September of 2000. As
part of the divorce proceedings, the state court awarded Ronald an interest in Denise’s
Northwest Airlines Retirement Savings Plan for Contract Employees in the amount
of $71,089.00, which was the entire marital value of this asset.1 There is no dispute
that this retirement plan is a qualified plan under the Employee Retirement Income
Security Act of 1974 (“ERISA”). On November 17, 2000, the state court issued a
Domestic Relations Order to effect the distribution to Ronald from the retirement
plan. Pursuant to the Domestic Relations Order, Ronald was made an alternate payee
under the retirement plan, and is entitled to receive a single lump sum distribution
from the plan as soon as administratively feasible after Northwest Airlines determines
that the Domestic Relations Order constitutes a qualified domestic relations order and
the time for administrative appeals expires. However, in March 2001, Northwest
1
The state court set aside to Denise Nelson the remaining non-marital value
of the retirement plan in the sum of $4,987.00 as her non-marital property.
2
Airlines determined that the state court’s Domestic Relations Order does not meet the
requirements of a qualified domestic relations order, and it will not make a
distribution to Ronald pursuant to that order until certain language in the order is
modified to its satisfaction. During oral argument counsel informed us that the
Domestic Relations Order has not yet been modified, but for purposes of this appeal,
counsel agreed that the Domestic Relations Order constitutes a qualified domestic
relations order and that only technical amendments are required to satisfy Northwest
Airlines. To date, the funds due Ronald have not been distributed to him, but remain
in the retirement plan.
On February 26, 2001, Ronald filed a voluntary petition for relief under
Chapter 7 of the Bankruptcy Code. Ronald claimed that the interest in the retirement
plan was not property of the bankruptcy estate, or, alternatively that it was exempt
under either 11 U.S.C. § 522(d)(5) or 11 U.S.C. § 522(d)(10)(E). Both the Chapter
7 Trustee and the creditor/law firm that represented Ronald during his marital
dissolution proceeding objected to Ronald’s attempt to protect his interest in the
retirement plan from distribution to creditors. Following a hearing on the matter, the
bankruptcy court determined that Ronald’s interest in the retirement plan was
property of the bankruptcy estate, and that it was not exempt under 11 U.S.C. §
522(d)(10)(E). The bankruptcy court allowed Ronald to claim the sum of $4,525.00
as exempt, which was the remaining amount available under the wildcard exemption
set forth in 11 U.S.C. § 522(d)(5). Ronald timely appeals the bankruptcy court’s
ruling that his interest in the retirement plan is property of the bankruptcy estate. He
does not take issue with the bankruptcy court’s rulings with respect to the exemptions
claimed under 11 U.S.C. §§ 522(d)(5) and 522(d)(10)(E).
Issue on Appeal
The sole issue on appeal is whether the bankruptcy court correctly ruled that
the $71,089.00 lump sum payment due and owing Ronald as an alternate payee under
3
his former spouse’s ERISA-qualified retirement plan constitutes property of the
bankruptcy estate. Ronald contends that the bankruptcy court erred in ruling that
benefits payable to an alternate payee from an ERISA-qualified retirement plan are
not excluded from the bankruptcy estate by operation of 11 U.S.C. § 541(c)(2).
Ronald argues that although there is a clear distinction between a plan participant and
an alternate payee, that distinction is irrelevant as to the protections afforded by
ERISA section 206(d)(1), which requires that all qualified plans must prevent the
assignment or alienation of benefits provided under the plan. Ronald argues that the
purpose behind ERISA section 206(d)(1) is to protect the beneficial interest in an
ERISA-qualified retirement plan, regardless of to whom that interest belongs,
including an alternate payee who is considered a beneficiary pursuant to ERISA
section 206(d)(3)(J). Ronald argues that because he is a beneficiary of the Northwest
Airlines’ ERISA-qualified retirement plan, and because his beneficial interest is
subject to the anti-alienation provisions of ERISA, this situation falls under the
protective umbrella of Patterson v. Shumate, 504 U.S. 753,
112 S. Ct. 2242, 119 L.
Ed. 2d 519 (1992), and his interest in the retirement plan should be excluded from the
bankruptcy estate.
Standard of Review
Because the parties do not dispute the factual issues in this case, and the only
issue is whether the bankruptcy court correctly interpreted and applied the law, our
review is de novo. See Anderson v. Seaver (In re Anderson), 269 B.R. 27, 29 (B.A.P.
8th Cir. 2001)(citing Andersen v. Ries (In re Andersen),
259 B.R. 687, 690 (B.A.P.
8th Cir. 2001); Abernathy v. LaBarge (In re Abernathy),
259 B.R. 330, 332 (B.A.P.
8th Cir. 2001)). “Whether property is included in the bankruptcy estate is a question
of law.” Drewes v. Vote (In re Vote),
276 F.3d 1024, 1026 (8th Cir. 2002)(quoting
Ramsay v. Dowden (In re Central Arkansas Broadcasting Co.),
68 F.3d 213, 214 (8th
Cir. 1995)).
4
Discussion
Property of the bankruptcy estate includes “all legal or equitable interests of the
debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). “The
scope of this section is very broad and includes property of all descriptions, tangible
and intangible, as well as causes of action.” Whetzal v. Alderson, 32 F.3d 1302, 1303
(8th Cir. 1994)(citation omitted). However, pursuant to section 541(c)(2) of the
Bankruptcy Code, property that is subject to restrictions on transfer by “applicable
nonbankruptcy law” is excluded from property of the bankruptcy estate. 11 U.S.C.
§ 541(c)(2).2 See also
Whetzal, 32 F.3d at 1303.
In Patterson v. Shumate, 504 U.S. 753,
112 S. Ct. 2242,
119 L. Ed. 2d 519
(1992), the United States Supreme Court held that a debtor’s interest in an ERISA-
qualified retirement plan could be excluded from the bankruptcy estate pursuant to
section 541(c)(2). In Whetzal, the Eighth Circuit observed that the Supreme Court
had “relied on ERISA’s requirement that approved plans include a provision ‘that
benefits provided under the plan may not be assigned or alienated.’”
Whetzal, 32 F.3d
at 1303 (applying holding in Patterson v. Shumate to rule that a Chapter 7 debtor
former federal employee’s interest in a civil service retirement plan was not property
of the bankruptcy estate). Ronald asks us to extend the holding in Patterson v.
Shumate to the interest in an ERISA-qualified retirement plan that a debtor has
acquired through a qualified domestic relations order pursuant to a marital dissolution
proceeding.
The section of ERISA at issue here provides in pertinent part:
2
Section 541(c)(2) of the Bankruptcy Code states: “A restriction on the
transfer of a beneficial interest of the debtor in a trust that is enforceable under
applicable nonbankruptcy law is enforceable in a case under this title.” 11 U.S.C. §
541(c)(2).
5
(d) Assignment or alienation of plan benefits
(1) Each pension plan shall provide that benefits provided under the
plan may not be assigned or alienated.
....
(3)(A) Paragraph (1) shall apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a participant
pursuant to a domestic relations order, except that paragraph (1) shall
not apply if the order is determined to be a qualified domestic relations
order. Each pension plan shall provide for the payment of benefits in
accordance with the applicable requirements of any qualified domestic
relations order.
(B) For purposes of this paragraph–
(i) the term “qualified domestic relations order” means a
domestic relations order–
(I) which creates or recognizes the existence
of an alternate payee’s right to, or assigns to
an alternate payee the right to, receive all or a
portion of the benefits payable with respect to
a participant under a plan . . . .
....
(J) A person who is an alternate payee under a qualified domestic
relations order shall be considered for purposes of any provision of this
chapter a beneficiary under the plan. . . .
(K) The term “alternate payee” means any spouse, former spouse,
child, or other dependent of a participant who is recognized by a
domestic relations order as having a right to receive all, or a portion of,
the benefits payable under a plan with respect to such participant.
29 U.S.C. § 1056(d) (1999). ERISA defines “beneficiary” as “a person designated
by a participant, or by the terms of an employee benefit plan, who is or may become
entitled to a benefit thereunder.” 29 U.S.C. § 1002(8) (1999). Section 1056(d)(1) of
ERISA imposes “an affirmative prohibition on the alienation of benefits provided for
by ERISA pension benefit plans.” Schantz v. Marine Midland Bank, N.A. (In re
Schantz), 221 B.R. 653, 659 (N.D.N.Y. 1998)(citing Mackey v. Lanier Collection
Agency & Serv.,
486 U.S. 825, 836,
108 S. Ct. 2182,
100 L. Ed. 2d 836 (1988)).
6
We believe that Patterson v. Shumate does support Ronald’s position. In that
case, the Supreme Court stated that the plain language of the ERISA statute must be
enforced according to its terms. Patterson v. Shumate, 504 U.S. at 757-59, 112 S. Ct.
at 2246-47. The Supreme Court opined:
Having concluded that “applicable nonbankruptcy law” is not
limited to state law, we next determine whether the anti-alienation
provision contained in the ERISA-qualified Plan at issue here satisfies
the literal terms of § 541(c)(2).
Section 206(d)(1) of ERISA, which states that “[e]ach pension
plan shall provide that benefits provided under the plan may not be
assigned or alienated,” 29 U.S.C. § 1056(d)(1), clearly imposes a
“restriction on the transfer” of a debtor’s “beneficial interest” in the
trust. . . .
....
Indeed, this Court itself vigorously has enforced ERISA’s prohibition
on the assignment or alienation of pension benefits, declining to
recognize any implied exceptions to the broad statutory bar. See Guidry
v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365,
110 S. Ct.
680,
107 L. Ed. 2d 782 (1990).
Id., 504 U.S. at
759-60, 112 S. Ct. at 2247. The Supreme Court continued:
[O]ur decision today ensures that the treatment of pension benefits will
not vary based on the beneficiary’s bankruptcy status. See Butner v.
United States, 440 U.S. 48, 55,
99 S. Ct. 914, 918,
59 L. Ed. 2d 136
(1979)(observing that “[u]niform treatment of property interests”
prevents “a party from receiving ‘a windfall merely by reason of the
happenstance of bankruptcy,’” quoting Lewis v. Manufacturers National
Bank, 364 U.S. 603, 609,
81 S. Ct. 347, 350,
5 L. Ed. 2d 323 (1961)).
We previously have declined to recognize any exceptions to ERISA’s
antialienation provision outside the bankruptcy context. See Guidry v.
Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365,
110 S. Ct. 680,
107 L. Ed. 2d 782 (1990)(labor union may not impose constructive trust
on pension benefits of union official who breached fiduciary duties and
embezzled funds). Declining to recognize any exceptions to that
7
provision within the bankruptcy context minimizes the possibility that
creditors will engage in strategic manipulation of the bankruptcy laws
in order to gain access to otherwise inaccessible funds. . . .
Our holding also gives full and appropriate effect to ERISA’s goal
of protecting pension benefits. See 29 U.S.C. §§ 1001(b) and (c). This
Court has described that goal as one of ensuring that “if a worker has
been promised a defined pension benefit upon retirement–and if he has
fulfilled whatever conditions are required to obtain a vested benefit–he
actually will receive it.” Nachman Corp. v. Pension Benefit Guaranty
Corporation, 446 U.S. 359, 375,
100 S. Ct. 1723, 1733,
64 L. Ed. 2d 354
(1980). In furtherance of these principles, we recently declined in
Guidry, notwithstanding strong equitable considerations to the contrary,
to recognize an implied exception to ERISA’s antialienation provision
that would have allowed a labor union to impose a constructive trust on
the pension benefits of a corrupt union official. We explained:
“Section 206(d) reflects a considered congressional policy
choice, a decision to safeguard a stream of income for
pensioners (and their dependents, who may be, and perhaps
usually are, blameless), even if that decision prevents
others from securing relief for the wrongs done them. If
exceptions to this policy are to be made, it is for Congress
to undertake that task.” 493 U.S., at 376, 110 S. Ct., at
687.
Id., 504 U.S. at
764-65, 112 S. Ct. at 2249-50 (emphasis in original).
However, a more recent United States Supreme Court case, although not
directly on point, is very instructive and greatly supports the proposition that
Ronald’s undistributed interest in the ERISA-qualified retirement plan, even though
obtained through a qualified domestic relations order, is not property of the
bankruptcy estate. That case is Boggs v. Boggs, 520 U.S. 833,
117 S. Ct. 1754,
138
L. Ed. 2d 45 (1997).
In Boggs, Isaac Boggs worked for South Central Bell from 1949 until his
retirement in 1985. Isaac and Dorothy, his first wife, were married when he began
8
working for the company. They had three sons during the marriage and they
remained husband and wife until Dorothy’s death in 1979. In 1980, Isaac married
Sandra, and they remained married until Isaac’s death in 1989. Upon his retirement,
Isaac received various benefits from his employer’s ERISA-qualified retirement plan,
which included a lump-sum distribution in the amount of approximately $150,000.00,
which Isaac rolled over into an IRA worth over $180,000.00 at the time of his death;
96 shares of AT&T stock; and a monthly annuity payment in the amount of $1777.67.
After Isaac died, Sandra, the surviving second wife, and the sons from the first
marriage became involved in a dispute over the ownership of the retirement benefits
that had been distributed to Isaac. The sons claimed entitlement to a portion of the
retirement benefits pursuant to the terms of Dorothy’s will, in which she bequeathed
to Isaac one-third of her estate with a life estate in the remaining two-thirds, and she
bequeathed to her sons the ownership in the remaining two-thirds, subject to Isaac’s
life estate. The sons filed a state court action requesting an accounting and seeking
a judgment awarding them a portion of the IRA, the AT&T stock, the monthly
annuity payments received by Isaac during his retirement and the monthly survivor
spouse annuity payments paid and payable to Sandra after Isaac’s death. In response,
Sandra filed a complaint in the United States District Court for the Eastern District
of Louisiana seeking a declaratory judgment that ERISA pre-empted the application
of Louisiana community property and succession laws to the extent they recognized
the sons’ claim to an interest in the retirement benefits. Sandra contested the validity
of the testamentary transfer contending, in relevant part, that ERISA pre-empted
Dorothy’s purported testamentary transfer of her community property interest in the
then-undistributed pension plan benefits. The parties agreed that absent pre-emption,
Louisiana law would control and that under it Dorothy’s will would dispose of her
community property interest in Isaac’s then-undistributed pension plan benefits. The
district court granted summary judgment against Sandra. A divided panel of the Fifth
Circuit affirmed.
9
A majority of the Supreme Court reversed, holding that ERISA pre-empts state
law allowing a nonparticipant spouse to transfer by testamentary instrument an
interest in undistributed pension plan benefits, and because Dorothy’s testamentary
transfer was a prohibited assignment or alienation of an interest in the pension plan,
the sons had no claim to the retirement benefits. The Supreme Court prefaced its
discussion by pointing out that although the case under review involved a community
property claim “our ruling will affect as well the right to make claims or assert
interests based on the law of any State, whether or not it recognizes community
property. Our ruling must be consistent with the congressional scheme to assure the
security of plan participants and their families in every State.” Boggs, 520 U.S. at
840, 117 S. Ct. at 1760. The Court continued:
ERISA is an intricate, comprehensive statute. Its federal
regulatory scheme governs employee benefit plans, which include both
pension and welfare plans. All employee benefit plans must conform to
various reporting, disclosure, and fiduciary requirements, see §§ 1021-
1031, 1101-1114, while pension plans must also comply with
participation, vesting, and funding requirements, see §§ 1051-1086. The
surviving spouse annuity and QDRO provisions, central to the dispute
here, are part of the statute’s mandatory participation and vesting
requirements. These provisions provide detailed protections to spouses
of plan participants which, in some cases, exceed what their rights
would be were community property law the sole measure.
ERISA’s express pre-emption clause states that the Act “shall
supersede any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan . . . .” § 1144(a). We can begin, and
in this case end, the analysis by simply asking if state law conflicts with
the provisions of ERISA or operates to frustrate its objects. We hold
that there is a conflict, which suffices to resolve the case.
Id., 520 U.S. at
841, 117 S. Ct. at 1760-61. The Supreme Court further opined that:
The principal object of [ERISA] is to protect plan participants and
beneficiaries. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103
10
S. Ct. 2890, 2896,
77 L. Ed. 2d 490 (1983)(“ERISA is a comprehensive
statute designed to promote the interests of employees and their
beneficiaries in employee benefit plans”). Section 1001(b) states that
the policy of ERISA is “to protect . . . the interests of participants in
employee benefit plans and their beneficiaries.” Section 1001(c)
explains that ERISA contains certain safeguards and protections which
help guarantee the “equitable character and the soundness of [private
pension] plans” in order to protect “the interests of participants in
private pension plans and their beneficiaries.”
Id., 520 U.S. at
845, 117 S. Ct. at 1762.
In Boggs, the Supreme Court discussed in depth the qualified domestic
relations order (QDRO) mechanism in 29 U.S.C. § 1056(d)(3), which the Court
recognized was a limited exception to the anti-alienation provision of ERISA:
ERISA confers beneficiary status on a nonparticipant spouse or
dependent in only narrow circumstances delineated by its provisions.
For example, as we have discussed, § 1055(a) requires provision of a
surviving spouse annuity in covered pension plans, and, as a
consequence, the spouse is a beneficiary to this extent. Section 1056's
QDRO provisions likewise recognize certain pension plan community
property interests of nonparticipant spouses and dependents. A QDRO
is a type of domestic relations order that creates or recognizes an
alternate payee’s right to, or assigns to an alternate payee the right to, a
portion of the benefits payable with respect to a participant under a plan,
§ 1056(d)(3)(B)(i). A domestic relations order, in turn, is any judgment,
decree, or order that concerns “the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child,
or other dependent of a participant” and is “made pursuant to a State
domestic relations law (including a community property law).” §
1056(d)(3)(B)(ii). A domestic relations order must meet certain
requirements to qualify as a QDRO. See §§ 1056(d)(3)(C)-(E).
QDRO’s, unlike domestic relations orders in general, are exempt from
both the pension plan anti-alienation provision, § 1056(d)(3)(A), and
ERISA’s general pre-emption clause, § 1144(b)(7). In creating the
11
QDRO mechanism Congress was careful to provide that the
alternate payee, the “spouse, former spouse, child, or other
dependent of a participant,” is to be considered a plan beneficiary.
§§ 1056(d)(3)(K), (J). These provisions are essential to one of REA’s
[Retirement Equity Act of 1984, Pub. L. 98-397, 98 Stat. 1426]
central purposes, which is to give enhanced protection to the spouse
and dependent children in the event of divorce or separation, and in
the event of death the surviving spouse. Apart from these detailed
provisions, ERISA does not confer beneficiary status on
nonparticipants by reason of their marital or dependent status.
Id., 520 U.S. at
846-47, 117 S. Ct. at 1763 (emphasis added). The Court continued:
Respondents contend it is anomalous and unfair that a divorced
spouse, as a result of a QDRO, will have more control over a portion of
his or her spouse’s pension benefits than a predeceasing spouse.
Congress thought otherwise. The QDRO provisions, as well as the
surviving spouse annuity provisions, reinforce the conclusion that
ERISA is concerned with providing for the living. The QDRO
provisions protect those persons who, often as a result of divorce,
might not receive the benefits they otherwise would have had
available during their retirement as a means of income. In the case
of a predeceased spouse, this concern is not implicated. The fairness of
the distinction might be debated, but Congress has decided to favor the
living over the dead and we must respect its policy.
The axis around which ERISA’s protections revolve is the
concepts of participant and beneficiary. . . .
Id., 520 U.S. at
854, 117 S. Ct. at 1766-67 (emphasis added).
There are two published post-Boggs bankruptcy court decisions in which each
court ruled, on facts almost identical to the situation before us, that a debtor’s interest
in an ERISA-qualified retirement plan obtained by means of a qualified domestic
relations order was property of the bankruptcy estate: In re Hageman, 260 B.R. 852
(Bankr. S.D. Ohio 2001), and Johnston v. Mayer (In re Johnston),
218 B.R. 813
12
(Bankr. E.D. Va. 1998). However, neither bankruptcy court addressed or considered
the impact of Boggs on this issue.
In Hageman, as part of a marital dissolution proceeding, the debtor and her
former spouse executed a separation agreement which provided in relevant part that
the debtor would be awarded $60,000.00 from her former spouse’s ERISA-qualified
retirement plan by way of a qualified domestic relations order. Seven months later,
the debtor filed for Chapter 7 bankruptcy protection and claimed that her interest in
the ERISA-qualified retirement plan was either exempt or excluded from property of
the estate. One day after the bankruptcy filing, the state court entered a QDRO that
provided in pertinent part that the debtor was awarded and assigned as her sole and
separate property, $60,000.00 of the balance in her former spouse’s ERISA-qualified
retirement account, and further provided for a lump sum distribution to the debtor at
such time as she elected to receive the distribution following the plan administrator’s
determination that the order constituted a qualified domestic relations order but in no
event later than her former spouse’s attainment of age 65 and termination of his
employment. The Chapter 7 Trustee filed an objection asserting that the debtor’s
interest in her former spouse’s ERISA-qualified retirement plan was property of the
estate and that no grounds existed to support her claim of exemption. As of the last
court hearing on the matter, the debtor had not sought a distribution from the plan.
The bankruptcy court sustained the Trustee’s objection, concluding, in relevant part,
that because the proceeds emanated from the qualified domestic relations order rather
than from the retirement plan, they could not be excluded by applicable ERISA case
law and were property of the bankruptcy estate. The court opined:
The Debtor’s attempts to exclude the $60,000.00 from the estate
property based upon Patterson v. Shumate must fail because her
property interest does not emanate from the retirement plan itself, but
from the QDRO. In re Johnston, 218 B.R. 813, 817 (Bankr. W.D. Va.
1998). The funds in the plan were derived from her former spouse’s
employment, and it was his plan. If it had been her retirement plan, then
13
this Court would be bound to conclude that the interest is excluded
based upon Patterson v. Shumate and subsequent case law. See, e.g., In
re Bartholomew, 214 B.R. 322 (Bankr. S.D. Ohio 1997). But that is not
the case, and by virtue of the QDRO and only the QDRO, as of the date
of the filing there was a property interest in the fund within the purview
and meaning of section 541(a)(1) of the United States Bankruptcy Code.
Hageman, 260 B.R. at 857.
In Johnston, the debtor was awarded an interest in the amount of $84,534.00
in her former husband’s ERISA-qualified pension plan pursuant to a property
settlement agreement and a qualified domestic relations order. The debtor filed her
Chapter 7 bankruptcy petition prior to any distribution of funds from the pension
plan. The Chapter 7 Trustee objected to the debtor’s position that her interest in the
pension funds was not property of the bankruptcy estate. The Trustee did concede
that if the court determined that the funds were property of the estate, he would
nonetheless be bound by the qualified domestic relations order that directed the funds
to be rolled-over directly into an IRA or other qualified plan which would probably
entitle the debtor to exempt a portion or all of the funds under state law. The
bankruptcy court sustained the Trustee’s objection, rejecting the debtor’s argument
that as a beneficiary of the ERISA-qualified retirement plan, she was entitled to all
of the protections provided to beneficiaries under ERISA, including the protection of
the anti-alienation provision. In so doing, the court failed to examine the plain
language of the relevant ERISA statute, 29 U.S.C. § 1056(d), but instead focused on
the definition of beneficiary contained in the retirement plan itself, and the provisions
of the retirement plan which distinguished between the treatment of a beneficiary
versus an alternate payee under a qualified domestic relations order. The court
determined that the terms of the retirement plan failed to support the debtor’s
assertion that she was entitled to protection under ERISA. The court stated:
We therefore conclude that the funds are not protected by
applicable non-bankruptcy law because the debtor is not a plan
14
participant or a beneficiary. Instead, she is simply an alternate payee
entitled to the funds pursuant to the qualified domestic relations order.
Accordingly, upon disbursement of the funds from the pension plan,
they become property of the estate to be rolled-over into an IRA or other
qualifying plan in accordance with the qualified domestic relations
order.
Johnston, 218 B.R. at 817. After ruling that the funds in question were property of
the bankruptcy estate, the court did find that the debtor was entitled to exempt all of
the funds under applicable state law.
Id. at 818.
We respectfully disagree with the rulings in Hageman and Johnston. The
Supreme Court in Boggs very clearly stated that:
In creating the QDRO mechanism Congress was careful to provide
that the alternate payee, the “spouse, former spouse, child, or other
dependent of a participant,” is to be considered a plan beneficiary.
§§ 1056(d)(3)(K), (J). These provisions are essential to one of REA’s
[Retirement Equity Act of 1984, Pub. L. 98-397, 98 Stat. 1426]
central purposes, which is to give enhanced protection to the spouse
and dependent children in the event of divorce or separation, and in
the event of death the surviving spouse. Apart from these detailed
provisions, ERISA does not confer beneficiary status on
nonparticipants by reason of their marital or dependent status.
Boggs, 520 U.S. at 847, 117 S. Ct. at 1763 (emphasis added). The Supreme Court
further stated that “[t]he QDRO provisions protect those persons who, often as a
result of divorce, might not receive the benefits they otherwise would have had
available during their retirement as a means of income. . . . The axis around which
ERISA’s protections revolve is the concepts of participant and beneficiary.”
Id., 520
U.S. at
854, 117 S. Ct. at 1767. Boggs clearly states that the beneficiaries under an
ERISA-qualified retirement plan who are entitled to the protection of the anti-
alienation provision include a plan participant’s ex-spouse who is made an alternate
payee of the plan pursuant to a qualified domestic relations order. Here, pursuant to
15
ERISA Ronald has an inalienable interest in a portion of his former spouse’s ERISA-
qualified retirement plan, and that interest is excluded from his bankruptcy estate.
The appellees also rely on an unpublished decision, In re Yaeger, 1998 WL
356888 (Bankr. D. Minn. June 26, 1998), as support for their contention that
Ronald’s interest in the ERISA-qualified plan is property of the bankruptcy estate.
However, Yeager is readily distinguishable because that situation did not involve an
interest in a retirement plan obtained pursuant to a qualified domestic relations order.
Conclusion
Based on the Supreme Court’s highly-instructive Boggs opinion, we hold that
Ronald’s undistributed interest in his former spouse’s ERISA-qualified retirement
plan which he obtained pursuant to the qualified domestic relations order is not
property of his bankruptcy estate. Accordingly, we reverse the decision of the
bankruptcy court.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
EIGHTH CIRCUIT
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