Article

Rectifying the Plan Documents Rule Under ERISA

Fall 2010
South Texas Law Review

 

I. Introduction

128

 

II. History

130

 

III. Federal Law Does Not Prevent Recovering Proceeds After Distribution Under ERISA

132

 

A. Determining Whether a Cause of Action Relates to an Employee Benefit Plan

132

 

B. Recovery of Distributed Proceeds Does Not Relate to the ERISA Plan

133

 

C. Application of When the State Claim Relates to the ERISA-Governed Plan

134

 

IV. Remedies for Recovering Proceeds

135

 

A. A Constructive Trust May be Imposed After Proceeds are Distributed

135

 

1. Imposing a Constructive Trust Post-Distribution Does Not Violate ERISA’s Preemption Clause

136

 

2. Imposing a Constructive Trust Post-Distribution Does Not Violate ERISA’s Anti-Alienation Clause

136

 

B. Other State Claims to Recover Benefits After Proceeds are Distributed

138

 

1. A Divorce Waiver is Contractually Binding Under State Law and May be Enforced to Recover Post-Distributed Proceeds

138

 

2. A Premarital Agreement Waiving Retirement Funds Should be Enforced to Allow for the Recovery of Post-Distributed Proceeds Under State Law

140

 

C. Application of State Remedies to Recover Proceeds Paid to an Unintended Beneficiary

141

 

V. Texas Should Allow State-Law Claims to Recover Benefits Paid to an Unintended Beneficiary Pursuant to the Plan Documents Rule

142

 

A. The Status of Texas Law

143

 

B. Texas Should Allow the Recovery of Benefits After Distribution in Accordance with ERISA

145

 

1. Applying a Constructive Trust Against the Unintended Beneficiary Under Texas Law Prevents Unjust Enrichment

145

 

2. Texas Contract Law Provides the Opportunity to Recover Post-Distributed Proceeds

148

 

VI. Conclusion

150

*128 I. Introduction

Ken and Barbie fell hopelessly in love. They married with the intent to live happily ever after; unfortunately, that is not how the story ends. After a bitter divorce, Barbie waived her rights to Ken’s retirement plan that was governed by the Employee Retirement Income Security Act (ERISA) of 1974.1 Ken was advised by his attorney that the waiver was effective to remove Barbie as his designated beneficiary.2 Ken later found his true love, Skipper, and they lived happily ever after until Ken’s death. Ken’s will left all of his property, including his retirement benefits, to Skipper. To Skipper’s surprise, the retirement benefits were paid to Barbie because Ken had never changed the designated beneficiary on his employee-benefit plan documents. Skipper, who was much younger than Ken, was relying on this money to support her for her remaining years. This is the unfortunate outcome when a person does not change the designated beneficiary on their employee benefit program that is governed by ERISA.3 Now, Ken’s attorney is worried about a malpractice suit for not advising Ken to change the name on the beneficiary form, and Skipper, the intended beneficiary, is left with no money to support her. Barbie, on the other hand, is quite content. She takes the money without remorse and begins traveling the world with her new man, spending the money like a lottery winner, and cannot be found.

In a recent United States Supreme Court decision, the Court held that the benefits of an employee-benefit plan governed by ERISA are to be distributed in strict compliance with the plan’s documents.4 *129 Compliance with an ERISA plan’s documents is commonly referred to as the “plan documents rule.”5 This decision, at first, may seem to be the final decision about who will receive the benefits; however, it is only the beginning. The Supreme Court remained silent on whether an estate may recover proceeds under state law after the proceeds are first distributed to the designated beneficiary in the employer’s ERISA plan documents.6

When a couple makes an agreement pursuant to a divorce, but does not file a Qualified Domestic Relations Order (QDRO),7 it may create a future issue over who is the rightful owner of future benefits.8 In a divorce decree, or a premarital agreement, an ex-spouse may waive their right to claim proceeds from a retirement account. Problems arise, however, when the ex-spouse’s name is not properly removed as beneficiary from an employer’s benefit-plan documents. If the participant dies, the intended beneficiary may not be entitled to receive any benefits due to the plan documents rule.9 The ex-spouse may end up receiving the proceeds even though they waived their right to receive them under the divorce decree or premarital agreement.10

Many federal courts have held that ERISA does not govern employee benefits once they are distributed.11 These holdings leave the door open for future claims to recover the benefits under state law. By remaining silent on the issue, the Supreme Court created an opportunity for more litigation in an unsettled area.12 In the meantime, the person to whom the proceeds were distributed in accordance with the plan documents may make them unavailable by *130 the time the person to whom they are rightfully entitled attempts to recover them in subsequent litigation.13

The emphasis of this Comment is that once the proceeds of an ERISA plan have been distributed, they are no longer entitled to ERISA protection, and, at that point, they may be recovered either by the imposition of a constructive trust or by other state causes of action.14 Texas and other states have the ability to apply these mechanisms; however, these state recovery actions must be filed shortly after the initial distribution to avoid the proceeds disappearing.15

The analysis of this Comment begins in Part II with a brief history of ERISA and its preemption clause. Part III focuses on whether it is possible to recover proceeds after they have been distributed to the beneficiary in accordance with ERISA, and addresses when a state cause of action impermissibly relates to an ERISA plan and when it does not. Part IV of this Comment addresses possible remedies under state laws that may allow recovery of post-distributed proceeds. This section analyzes how other states have applied a constructive trust to the proceeds once they were distributed to an unintended beneficiary. It also addresses how a waiver in a divorce decree may result in the ability to bring a breach of contract claim as a method of recovery after the proceeds have been distributed in accordance with the plan. Finally, Part V applies the methods used by other states and explains how Texas litigants may use similar approaches to recover the proceeds after distribution. This part explores both the option of imposing a constructive trust and the option of bringing a breach of contract claim under Texas law to recover distributed benefit proceeds.

II. History

“Congress enacted ERISA [in 1974] to ‘protect the welfare of employees and their dependents who depend on retirement plans.”’16 Congress wanted to encourage private pension plans and protect plan *131 participants by guaranteeing that they would receive promised benefits.17 To protect participants, Congress created two safeguards, a preemption clause and an anti-alienation clause.18

The preemption clause states that ERISA “shall supersede any and all State laws insofar as they now or hereafter relate to any employee benefit plan described . . . .”19 The anti-alienation clause states, “Each pension plan shall provide that the benefits provided under the plan may not be assigned or alienated.”20 One exception to these safeguards is through a QDRO.21 A domestic relations order (divorce decree) is qualified if it creates “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 [and] the requirements in subsections (C) and (D) are met.”22

However, for unqualified divorce decrees, such a waiver of ERISA-governed retirement benefits is not recognized for purposes of distribution if it is inconsistent with the designated beneficiary in the plan documents; regardless of whether the decree complies with ERISA’s anti-alienation clause.23 In fact, the plan administrator who determines whom receives the benefits is not allowed to look at any waivers that do not satisfy a QDRO.24 The plan administrator must distribute the benefits according to the plan documents to satisfy *132 ERISA’s purpose of guaranteeing simplicity and efficiency of benefit administration.25

III. Federal Law Does Not Prevent Recovering Proceeds After Distribution Under ERISA

ERISA’s preemption clause states that ERISA preempts any state law that “relate [s] to” the employee-benefit plan.26 The purpose of this goal is to “protect the participant and defray the cost of administering the plan.”27 If a state cause of action does not “relate to” ERISA--meaning it does not interfere with the ERISA plan or plan administrator--then a person may bring that claim, even if the claim involves benefits that have been distributed because the claim is not preempted by ERISA.28

A. Determining Whether a Cause of Action Relates to an Employee Benefit Plan

Courts use a two-prong test to determine whether a cause of action relates to an employee-benefit plan governed by ERISA.29 Under the first prong, of the test is that “the state law claim addresses an area of exclusive federal concern, such as the right to receive benefits under the terms of the ERISA plan . . . .”30 A state-law claim challenging the right of the beneficiary named on the plan documents to receive ERISA-protected benefits directly affects the administration of the plan; therefore, the cause of action impermissibly relates to the plan and is preempted by ERISA.31

The second prong of the “relates to” test requires that “the claim directly affects the relationship among traditional ERISA entities--the employer, the plan and its fiduciaries, and the participants and *133 beneficiaries.”32 The second prong’s “critical determination [is] whether the claim itself created a relationship between the plaintiff and defendant that is so intertwined with an ERISA plan that it cannot be separated.”33 Claims arising out of a separate contract, rather than the benefit plan governed by ERISA, are not preempted by ERISA.34

B. Recovery of Distributed Proceeds Does Not Relate to the ERISA Plan

Although any action affecting the determination of who receives the proceeds at distribution impermissibly relates to an ERISA plan, an attempt to recover proceeds post- distribution does not relate to an ERISA plan and is not preempted by federal law.35 Once the proceeds are distributed, the person seeking recovery of the proceeds is no longer seeking a determination of the beneficiary under the plan, but is instead challenging who has the continuing right to retain the proceeds.36 Such retention challenges, which most often arise out of waivers in divorce decrees or a premarital agreements, are not an area of exclusive federal control nor do they directly affect the relationship among traditional ERISA entities because the proceeds have already been distributed as required by ERISA.37 To this point, the Michigan Supreme Court stated that, “while a plan administrator is required by ERISA to distribute the proceeds from a plan to a named beneficiary, the named beneficiary can then be found to have waived the right to *134 retain those proceeds.”38 After the proceeds have been distributed, the successful administration of the plan is no longer a concern and Congress’s goals of simplicity and efficiency of plan administration are achieved.39

C. Application of When the State Claim Relates to the ERISA-Governed Plan

Returning to the example of Barbie, Ken, and Skipper; Barbie was the beneficiary listed on Ken’s retirement account, and state law could not help Skipper, predistribution. Prior to distribution, any state action taken to distribute the proceeds to Skipper would have directly related to the distribution and administration of the ERISA plan.40 The plan administrator determines the rights and the distribution of Ken’s retirement fund, which is exclusively an area of federal concern preempted by ERISA.41 The administrator had a duty to pay Barbie because Ken left her name as the beneficiary on the plan documents.42 In addition to encroaching into an area controlled by federal law, a claim by Skipper to recover benefits predistribution would directly affect the relationship among the traditional ERISA entities: Ken as the participant, Barbie as the beneficiary, the employer, and the plan administrator.43 Thus, any action brought by Skipper before the proceeds were paid to Barbie triggers both prongs of the relate to test and the state action would impermissibly relate to the ERISA plan.44 However, once the proceeds have been paid to Barbie, ERISA no longer controls whether or not Barbie has the right to keep the proceeds.45 The goals of ERISA have been achieved and the recovery of Ken’s retirement fund is now open to state-law claims.46

*135 IV. Remedies for Recovering Proceeds

Determining whether the proceeds of a benefit plan may be recovered post-distribution is only the first step in the process. The next step involves determining is what state-law actions are available to recover those funds.

Many federal courts have encouraged an equitable approach by imposing a constructive trust based on unjust enrichment on the person who was paid the proceeds.47 Other federal courts have discussed using a breach of contract claim to recover post-distribution proceeds when the person in possession of the proceeds had previously relinquished the right in a divorce decree.48 However, such a claim must be brought in state court (unless it is a diversity action and state law is applied) because the federal courts no longer have jurisdiction once the federal claim is absolved from the action.49

A. A Constructive Trust May Be Imposed After Proceeds Are Distributed

A constructive trust is an equitable remedy that requires a person, whom a court has determined is holding property unfairly, to convey the property to its rightful owner.50 This equitable remedy allows courts to prevent the unjust enrichment of the party holding the property.51 Although a constructive trust cannot be imposed before the benefits are distributed, nothing prevents the imposition of a constructive trust after the benefits are distributed.52 Applying a constructive trust to distributed proceeds does not violate ERISA’s preemption53 or anti-alienation clauses.54

*136 1. Imposing a Constructive Trust Post-Distribution Does Not Violate ERISA’s Preemption Clause

ERISA’s preemption clause does not prevent a person from recovering the funds under a state’s equitable remedy after they have been distributed.55 After proceeds are distributed, a constructive trust may be imposed “in accordance with applicable state law if equity so requires.”56 If a former spouse waives his or her rights to a decedent’s retirement proceeds, yet is still paid those proceeds because their name was not removed as beneficiary on the employer’s plan, then that person may hold the legal right to the proceeds, but they may not have the right to those proceeds “in equity and good conscience.”57 That is exactly the type of situation where an equitable constructive trust under state law should be considered.58 The plan administrator must pay the designated beneficiary on the plan documents, but the designated beneficiary would only retain legal title while the intended beneficiary would hold equitable title.59 At that point, imposition of a constructive trust would require the person holding legal title to serve as a trustee and deliver the proceeds to the person retaining equitable title.60

2. Imposing a Constructive Trust Post-Distribution Does Not Violate ERISA’s Anti-Alienation Clause

In Kennedy, the Supreme Court held that a waiver in a nonqualified divorce decree does not violate ERISA’s anti-alienation clause because a waiver does not actively direct the benefits elsewhere.61 The anti-alienation clause is treated as a spendthrift mechanism under trust law to prevent the beneficiary from transferring his or her interest prior to distribution.62 However, the *137 anti-alienation clause does not prevent waiver by a beneficiary.63 A designated beneficiary has the power, within the scope of ERISA’s protection scheme, to disclaim their right to benefits prior to distribution so long as the waiver does not dictate an alternate payee for the benefits.64 The Kennedy Court reasoned that it does not make sense to force a beneficiary to take an interest in property that the beneficiary does not want.65 Therefore, a predistribution, nonqualified divorce waiver of benefits is not void at the time it is made.

Although a predistribution waiver by a designated beneficiary does not violate ERISA’s anti-alienation clause, imposing a constructive trust at that point would violate the clause.66 Imposing a constructive trust before distribution would assign the right to the benefits to another person, which is specifically what the anti-alienation clause seeks to prevent.67 On the other hand, the application of a constructive trust post-distribution does not violate the anti-alienation clause because the proceeds are no longer under the control of an ERISA plan administrator.68 The Tenth Circuit affirmed this reasoning and held that the anti-alienation clause does not preclude the imposition of a constructive trust once the benefits have been paid out in accordance with federal law.69 If a court finds that a predistribution waiver is valid, then a constructive trust should be applied post-distribution to enforce the waiver and prevent the unjust enrichment of the person who waived their rights.

*138 B. Other State Claims to Recover Benefits After Proceeds Are Distributed

State law may provide other avenues of recovery for benefits distributed to a former spouse who waives their rights to those benefits in a divorce decree or a premarital agreement. A waiver of interests in a divorce decree is contractually binding under state law as long as it is voluntary and explicit.70 If a waiver of retirement benefits in a divorce decree is found to be contractually binding and the person who executed such waiver is in possession of the benefits, then the estate should be able to file an action for breach of contract on behalf of the decedent.71 Similarly, premarital agreements are also governed by state law and should be enforced as a post-distribution recovery method for proceeds paid in compliance with the benefit plan, but in violation of the premarital agreement.72

1. A Divorce Waiver is Contractually Binding Under State Law and May Be Enforced to Recover Post-Distributed Proceeds

When a designated beneficiary waives their right to retirement proceeds in a divorce decree, the terms of that decree may be used in a subsequent action to prevent the named beneficiary from retaining the proceeds, even if the proceeds were paid to the person in accordance with the plan documents rule.73 Although the benefits must be distributed according to the plan documents, this does not mean the initial person receiving the benefits has the right to keep them.74 After distribution, state law governs the right to keep the proceeds.75 Since the Kennedy decision, both federal and state courts *139 have considered application of state law to determine rights to post-distribution proceeds.76

For example, the Michigan Supreme Court allowed a post-distribution state cause of action, based on waiver in a pre-distribution divorce decree, to recover the proceeds paid under an ERISA-governed benefit plan.77 The decedent spouse failed to change the beneficiary on his policy when he remarried and the funds were distributed to his ex-wife.78 The court held that even though the plan administrator had properly distributed the proceeds to the ex-wife in accordance with the ERISA plan documents, she was not entitled to keep them in a subsequent action because her previous waiver in the divorce decree eliminated her interest in retaining the proceeds.79

Similarly, the United States District Court of Massachusetts recently analyzed the recovery of post-distribution pension funds based on a waiver in a divorce decree created under state law.80 The district court applied Massachusetts law and focused on the waiver language. The court ultimately held that the language of the divorce decree was not specific enough under Massachusetts law to waive the ex-spouse’s rights to the proceeds.81 The language in the divorce waiver stated, “Each party agrees that they will retain their separate pension agreements and plans . . . and renounce any interest in the pension of the other.”82 The particular wording was then distinguished from waivers in other Massachusetts cases where courts upheld a waiver of pension funds in divorce decrees.83 The district court, however, found that the language of the divorce decree lacked the requisite specificity and, at most, the language was an effective *140 agreement that the husband may change the beneficiary form.84 The district court applied Massachusetts law to arrive at its determination, and indicating in dicta that, had the divorce waiver specifically relinquished the right to the proceeds, it would have been given its effect post-distribution.85 These holdings, both in state and federal courts, support the idea that divorce decree waivers may be enforced to recover benefit plan proceeds post-distribution under state law.

2. A Premarital Agreement Waiving Retirement Funds Should Be Enforced to Allow for the Recovery of Post-Distributed Proceeds Under State Law.

The same reasoning that supports waiver of ERISA-governed benefits in a divorce decree also supports the idea that state causes of action based on a premarital agreement waiver may allow for recovery of distributed benefit proceeds.86 Once proceeds are no longer in possession of a benefit plan administrator, they are no longer protected by ERISA, and, at that point, they are subject to the rights conferred in a premarital agreement.87 For example, the New Jersey Superior Court Appellate Division held that once ERISA-governed retirement benefits are paid to the designated beneficiary, even if paid early, those assets are subject to the terms of a premarital agreement.88 The court rejected the argument that the benefit proceeds were forever sheltered by ERISA, even after early withdrawal.89 Thus, the effect of a benefits waiver in a divorce decrees and premarital agreements are identical--distributed proceeds are no *141 longer protected by ERISA and may be subject to forfeiture under state law.90 Therefore, a former spouse’s premarital agreement that waives their right to the decedent’s retirement plan should also be enforceable post-distribution.91

C. Application of State Remedies to Recover Proceeds Paid to an Unintended Beneficiary

In the introductory example--although Barbie has the proceeds of Ken’s benefit plan, she has no entitlement to them in equity or law because she waived her rights to those proceeds in the divorce decree.92 Skipper has two different options under state law to recover the proceeds for Ken’s estate. The first option would be to sue Barbie for unjust enrichment on behalf of Ken’s estate, because Barbie has proceeds she should not have “in equity and good conscience.”93 The court has the power to impose a constructive trust allowing Barbie to keep legal title while giving equitable title to Ken’s estate.94 Barbie, now acting as trustee of the benefit proceeds, would then be ordered to distribute the funds to Ken’s estate.95

Skipper’s second option would be to bring a breach of contract claim against Barbie on behalf of Ken’s estate.96 Skipper should assert that Barbie waived her rights to retain Ken’s benefits in a legally binding document--a divorce decree--resulting in a breach of *142 contract at the time Barbie retained the benefit proceeds as her own.97 Skipper should seek restitution as a remedy for Barbie’s breach.98 This would require that Barbie put Ken’s estate back into the position it would have been if Barbie had not breached the divorce decree.99 The logical result would be to require Barbie to pay damages in the amount of the proceeds.100

The illustration above shows that, although the benefits of a plan must be paid according to the plan documents under federal law, if the actual beneficiary is not the person that should have received them, post-distribution state causes of action may be used to return the proceeds to the intended beneficiary.101

V. Texas Should Allow State-Law Claims to Recover Benefits Paid to an Unintended Beneficiary Pursuant to the Plan Documents Rule

Until the Kennedy case, Texas--following the practice of the majority of circuit courts--applied federal common law to determine who was entitled to the proceeds of an ERISA-governed benefit plan when the beneficiary had waived their right to those proceeds in a divorce decree.102 The Kennedy case, however, developed a bright-line *143 test,--the plan documents rule--which now makes it impossible to use the federal common law method to resolve this type of dispute.103 In response to this decision, Texas should consider other causes of action that allow intended beneficiaries to recover proceeds paid to unintended beneficiaries in compliance with Kennedy. Once the proceeds are distributed pursuant to federal law, Texas courts should consider allowing the intended beneficiary to request the imposition of a constructive trust on the benefit proceeds or allowing the party to bring a breach of contract claim as a method to recover the proceeds.

A. The Status of Texas Law

Before the Unites States Supreme Court ruled on Kennedy, Texas applied federal common law to resolve disputes that arose when the plan document was not changed to reflect an ex-spouse’s waiver of benefits.104 For example, the Texas Supreme Court, in Keen, noted that federal common law is typically used when ERISA does not address the issue.105 The court stated that because a benefit waiver in a divorce decree did not violate ERISA’s anti-alienation clause, it was enforceable under federal common law as long as it was “specific, knowing, and voluntary.”106 Applying federal common law, Keen held that a valid waiver was enforceable at the time of distribution, even though the ERISA-governed retirement account documents named the person who signed the waiver as beneficiary.107 Keen acknowledged that applying federal common law principles encouraged the uniformity ERISA was designed to promote.108 However, the decision in Kennedy signaled a shift in the federal common law and the Keen approach is no longer a viable option for Texas litigants in these situations.109

Although Texas courts have not explicitly addressed the issue of whether a constructive-trust action could be brought under state law *144 once the proceeds have been distributed, a federal district court expressed concern that such an approach may conflict with the voluntary waiver test.110 The court in Galvan v. SBC Pension Benefit Plan speculated, “A non-beneficiary claimant’s use of a constructive trust to obtain benefits held by a proper ERISA beneficiary certainly could not be characterized as a voluntary waiver of those benefits by that beneficiary.”111 However, Kennedy abrogated the Texas voluntary waiver approach expressed in Keen by specifically enforcing the plan documents rule when determining who receives the proceeds.112 Regardless of whether a person voluntarily waives his right to retirement proceeds in a divorce decree, the designated beneficiary is entitled to the distribution of benefit proceeds under the plan documents rule.113 Kennedy, in effect, established that the voluntary waiver test is no longer the appropriate standard for determining who is entitled to receive the proceeds of an ERISA-governed retirement plan; therefore, a post-distribution constructive trust is still an option available to Texas litigants.114

B. Texas Should Allow the Recovery of Benefits After Distribution in Accordance with ERISA

Given that a waiver in a divorce decree is not independently sufficient to divest an ex-spouse’s interest--without changing the plan’s designated beneficiary--requesting a constructive trust may be a viable follow-up to such a waiver because that type of post-distribution action does not conflict with the plan documents rule or the now-defunct voluntary waiver test.115 Texas litigants should request an equitable remedy or a breach-of-contract claim to recover post-distributed proceeds to an unintended beneficiary because Kennedy specifically avoided deciding whether ERISA’s reach extends to purely state-law causes of action post-distribution.116

*145 1. Applying a Constructive Trust Against the Unintended Beneficiary Under Texas Law Prevents Unjust Enrichment

Constructive trusts prevent the unjust enrichment of an unintended beneficiary by forcing that person to hold the proceeds for the benefit of the intended beneficiary. “Under Texas law, a constructive trust is an equitable remedy that courts may impose when ‘the person holding title to property would profit by a wrong or would be unjustly enriched if he were permitted to keep that property.”’117 If an ex-spouse previously waived their right to the decedent’s retirement proceeds, it would result in unjust enrichment to allow him or her to keep the proceeds. Therefore, imposing a constructive trust is a viable option to recover those funds under Texas law.

Although a constructive trust has not been applied to benefits distributed according to an ERISA-governed benefit plan, the remedy has been applied to the recovery benefits distributed under the Federal Employee Group Life Insurance Act (FEGLIA).118 In Fagan v. Chaisson, a husband granted half of his FEGLIA retirement benefits to his ex-wife pursuant to a divorce decree.119 The man remarried and then changed the designated beneficiary in the corresponding plan documents, naming his current spouse (the widow) as the beneficiary to the retirement account.120 The retirement accounts were governed by FEGLIA, which preempts state law, *146 including the waiver in the divorce decree.121 The Office of Personal Management (OPM)122 determined that the retirement benefits belonged to the widow because she was the designated beneficiary.123 After the proceeds were paid to the widow according to the FEGLIA plan documents, the ex-wife filed an action against the ex-husband’s estate, the widow, and the OPM, arguing that the benefits should be paid pursuant to the divorce decree.124 The trial court agreed and imposed a constructive trust on the portion of the benefits that belonged to the ex-wife as set forth in the divorce decree.125 The widow filed an appeal, but the Texas Court of Appeals affirmed the decision of the trial court.126 The court held “that FEGLIA does not preempt the power of state courts to impose a constructive trust on FEGLIA insurance proceeds” after the proceeds have been paid to the designated beneficiary.127

In reaching this decision, the court looked at the purpose underlying FEGLIA.128 The primary purpose of the FEGLIA section defended by the widow was “to provide for a speedy and economic settlement of insurance claims.”129 The court concluded that the purpose of FEGLIA was not be frustrated by the imposition of a constructive trust on proceeds after they had been distributed.130 Other courts have used the same reasoning to hold that ERISA’s purpose would not be undermined if a constructive trust were imposed on proceeds after they are distributed in accordance with ERISA.131 One *147 of ERISA’s goals is to have a national uniform plan to govern employee benefit plans.132 Once the proceeds have been paid to the designated beneficiary, ERISA’s purpose has already been achieved.133

The Fagan court also found it significant that FEGLIA does not have an anti-attachment clause, unlike like the Serviceman’s Group Life Insurance Act (SGLIA) where such a clause is fatal to the recovery of distributed proceeds.134 Thus, the court found that FEGLIA did not preempt a court from applying state law to impose a constructive trust on the proceeds.135 SGLIA’s anti-attachment clause states: “SGLIA policy proceeds [are] exempt from creditors and ‘any attachment, levy, or seizure by or under any legal or equitable process whatever, [sic] whether accomplished either before or after receipt by the beneficiary.”’136 The “strong language of the anti-attachment provision” in SGLIA demonstrates that Congress did not intend to allow the application of state actions, such as a constructive trust, on SGLIA proceeds after they are distributed.137 Thus, the court, in Fagan, reasoned that Congress knows how to include effective anti-attachment clauses and chose not to do so; therefore, there is no support for the idea that federal law preempts all state claims after FEGLIA proceeds have been distributed.138 Similar to FEGLIA, ERISA does not have an anti-attachment provision preventing the imposition of a constructive trust on distributed proceeds.139 Although *148 there is an anti-alienation clause in ERISA, the clause is only applicable to funds predistribution.140 Like FEGLIA proceeds, employee benefit proceeds governed by ERISA should be distributed in compliance with federal law, but nothing prevents a court from imposing a constructive trust under Texas law after the proceeds are distributed to the designated beneficiary.

2. Texas Contract Law Provides the Opportunity to Recover Post-Distributed Proceeds

Divorce agreements are generally subject to the law of the state.141 Under Texas law, “[t]he rules of contract law govern the construction of a property settlement agreement incorporated into a divorce decree.”142 Therefore, a divorce decree is a contract subject to being breached by one of the parties.143 Thus, a second method to recover benefit proceeds post-distribution under Texas law is for a party to prove that the person who was first paid the proceeds is in breach of a divorce decree by retaining the proceeds.144 As previously discussed, post-distributed proceeds are no longer subject to ERISA’s control, and therefore, the option to enforce the divorce decree under Texas contract law is available to recover the proceeds without being preempted by federal law.145

*149 In practice, a court would review a divorce decree to determine whether it is ambiguous.146 If a divorce decree is unclear or susceptible to more than one interpretation, it is ambiguous and the court can then look to outside evidence to discover the true intent of the parties.147 If a divorce decree is unambiguous, it is enforced as written.148 Therefore, if a divorce decree clearly and specifically divests an ex-spouse’s interest in retirement proceeds, then it should be enforced as written.149 Accordingly, the estate should be able to recover the proceeds paid to the ex-spouse by subsequently enforcing the decree in state court. However, if a court finds that the waiver of benefits in the divorce decree is ambiguous, then the court may look at outside evidence to determine the true intent of the parties.150 That evidence--such as opportunities to change the designated beneficiary or intent to keep the ex-spouse as the primary beneficiary--may assist a court to discover the true intent of the parties at the time the divorce decree was signed and help it to determine whether a breach of that decree has occurred.151

Premarital agreements--like divorce decrees--are also subject to state law.152 Premarital agreements are enforceable in Texas unless they are not voluntarily signed or the agreement is unconscionable.153 In the case that the agreement is unconscionable, the party contesting the agreement must also establish that he or she 1) did not have fair and reasonable disclosure of the property of the other party; 2) did not waive rights in writing to such disclosures; and 3) had no way to know of the existence of such property.154 The principles of contract law also govern these agreements.155

*150 Similar to a divorce decree, courts deciding whether a premarital agreement governs the rights to retirement benefits must analyze the text of the premarital agreement and determine whether the agreement has any ambiguity as to those rights.156 As with the divorce decree, if the agreement is unambiguous, it is enforceable as written, but if it is ambiguous, the court will consider outside evidence to determine the intent of the parties at the time the agreement was made.157 If the premarital agreement is held to be enforceable, then any language in the agreement directing the decedent’s retirement funds to be his or her separate property should be sufficient to allow the estate to recover the proceeds after they have first been distributed according to the plan documents.158 Therefore, enforcing a waiver of retirement funds in a premarital agreement is yet another vehicle for Texas litigants to use to recover post-distributed proceeds from an unintended beneficiary.

VII. Conclusion

Allowing parties to recover proceeds after they have been distributed to an unintended beneficiary provides the intended beneficiary a remedy that ERISA does not, while still preserving ERISA’s goal of creating a simple and efficient process for plan administrators. This idea, if adopted by more states, will bring harmony between state revocation-on-divorce statutes159 and ERISA by ensuring that the correct beneficiary is paid the proceeds but without disrupting plan administrators. Texas courts have the ability to apply the mechanisms discussed in this Comment and they should allow such options now that the federal common law approach is no longer available to parties to resolve these types of disputes.160

Even if more states adopt the approach this Comment encourages, litigants may still be faced with other practical issues when trying to recover benefits paid to an unintended beneficiary. For instance, although federal courts have stated that people may bring state claims to recover benefits paid to the person listed on the *151 designated beneficiary form, parties seeking to recover those proceeds need to institute these actions rather quickly to ensure the proceeds are still available. “In the Kennedy case, the wife moved to Norway and spent all the pension benefits before her death, making recovery from her impossible . . . .”161

One possible solution would be to incorporate the idea of imposing a statutory constructive trust on proceeds after distribution under state law.162 This would have an automatic effect, thereby reducing litigation costs.163 Another benefit to this approach would be that the preemption problems associated with the revocation-by-divorce statutes would be eliminated.164 Since the constructive trust would be applied after the ERISA-governed retirement funds have been distributed, there should not be a preemption problem.165 Furthermore, this approach maintains ERISA’s goals of a national uniform plan with easy administration.166 Plan administrators would still distribute the proceeds according to the plan documents’ designated beneficiary.167 Only after the proceeds were distributed would the state statute attach a constructive trust, an action that would have no effect on the plan administrator.168

While the Supreme Court remains silent about the options for recovery under state law, the occasion to argue for the use of such state-law mechanisms is now.169 The decisions in the near future will likely force the Supreme Court to speak up and address the issue. Texas has an opportunity to be a leader in demonstrating state-law remedies for parties seeking to recover proceeds paid to an unintended beneficiary, to satisfy the intent of the decedent and to get the proceeds to the right beneficiary.

Footnotes

 

1

See generally 29 U.S.C. §§ 1001-1461 (2006).

2

See id. § 1002(8) (“The term ‘beneficiary’ means a person designated by a participant, or by the terms of an employee benefit plan, who is or may be entitled to a benefit thereunder.”). In this Comment, the term “designated beneficiary” refers to the participating employee listed on the ERISA-governed plan documents to receive retirement benefits upon death of the participant.

3

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 877-88 (2009).

4

See id.

5

Id. at 877; accord Estate of McCalip v. Metro. Life Ins. Co., No. 08-12806, 2009 WL 1883533, at *6 (E.D. Mich. June 30, 2009); Kerber v. Qwest Group Life Ins. Plan, No. 07-cv-00644-WDM-KLM,2009 WL 928329, at *7 (D. Colo. Mar. 31, 2009).

6

See Kennedy, 129 S. Ct. at 875 n.10.

7

The QDRO is also governed by ERISA. See 29 U.S.C. § 1056(d)(3)(A) (2006).

8

See, e.g., Kennedy, 129 S. Ct. at 869 & n.2.

9

See Kennedy, 129 S. Ct. at 869.

10

See id.

11

See, e.g., Cent. States, Se. & Sw. Area Pension Fund v. Howell, 227 F.3d 672, 678-79 (6th Cir. 2000) (“Once the benefits of an ERISA ... plan have been distributed according to the plan documents, ERISA does not preempt the imposition of a constructive trust on those benefits.”); Brown ex rel. Estate of Sanger v. Wright, 511 F. Supp. 2d 850, 853 (E.D. Mich. 2007) (stating that challenging a beneficiary’s right to keep the proceeds does “relate to” the ERISA plan); Francis v. Donovan, No. 06-10080, 2006 WL 481672, at *3 (E.D. Mich. Feb. 28, 2006) (stating that the recovery of proceeds after distribution is not preempted by federal law under ERISA).

12

See Kennedy, 129 S. Ct. at 875 n.10.

13

See Correy E. Stephenson, Justices Clarify ERISA Quagmire, Law. USA, Feb. 2009, at 24 (explaining that when the Kennedy case was litigated, the money was gone and the ex-spouse was deceased, making recovery of the actual proceeds impossible).

14

See discussion infra Parts III A.-B., IV A.-B.

15

See Stephenson, supra note 13, at 24 (explaining that the proceeds were no longer available because the ex-wife had spent all of the money before her death).

16

Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 312 (Okla. Civ. App. 2004) (quoting Hawxhurst v. Hawxhurst, 723 A.2d 58, 63 (N.J. Super. Ct. App. Div. 1998)).

17

Id. (quoting Hawxhurst, 723 A.2d at 63).

18

Id. (quoting Hawxhurst, 723 A.2d at 63).

19

29 U.S.C. § 1144(a) (2006).

20

Id. § 1056(d)(1).

21

See id. § 1056(d)(3)(A).

The term ‘domestic relations order’ means any judgment, decree, or order (including approval of a property settlement agreement) which relates to 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).

22

Id. § 1056(d)(3)(B); see also §§ 1056(d)(3)(C) (detailing specific information needed about the plan participant and alternative payee); 1056(d)(3)(D) (explaining that QDROs may not conflict with certain aspects of the ERISA plan). 1056(d)(3)(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.”

23

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 874 & n.9, 875 (2009).

24

See id. at 874.

25

See id. at 875-76. The court states that it would be too much of a burden to require plan administrators to look at multiple external documents and determine whether the waiver complies with the law before administering the benefits. See id. at 876.

26

29 U.S.C. §1144(a) (2006).

27

Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 313 (Okla. Civ. App. 2004).

28

See Brown ex rel. Estate of Sanger v. Wright, 511 F. Supp. 2d 850, 853 (E.D. Mich. 2007).

29

See Jayne Elizabeth Zanglein, Ten Rules to Govern ERISA Litigation, 38 Tex. Tech. L. Rev. 767, 771 (2006).

30

Id.

31

See Wright, 511 F. Supp. 2d at 853; see also Metro. Life Ins. Co. v. Marsh, 119 F.3d 415, 421 (6th Cir. 1997) (“Applying state law to determine the beneficiary under the terms of a state divorce decree would not only relate to a plan, but would [also] interfere with the administration of a plan and violate its terms.”).

32

Zanglein, supra note 29, at 771.

33

Bank of La. v. Aetna U.S. Healthcare, Inc., 468 F.3d 237, 243 (5th Cir. 2006) (alteration in original) (quoting Hobson v. Robinson, 75 Fed. App’x 949, 954 (5th Cir. 2003)).

34

See Ne. Hosp. Auth. v. Aetna Health Inc., No. H-07-2511, 2007 WL 3036835, at *11 (S.D. Tex. Oct. 17, 2007) (holding that the substance of Northeast’s claim arose out of a separate contract with the hospital and not out of the terms of the ERISA patient’s benefit plans).

35

See Francis v. Donovan, No. 06-10080, 2006 WL 481672, at *3 (E.D. Mich. Feb. 28, 2006).

36

See id. at *2-3 (explaining that if a plaintiff claims breach of contract against the employer for the distribution of benefit plan proceeds, the claim is preempted by federal law).

37

See id. at *2 (noting that in this scenario the parties are merely plaintiff and defendant suing on breach of contract terms and are in no way challenging the administration of the plan nor suing the plan administrator); see also Sweebe v. Sweebe, 712 N.W. 2d 708, 713 (Mich. 2006) (“[there was] no invasion into the requirements of ERISA [when] the plan administrator distributed the proceeds to the named beneficiary, as required by ERISA”).

38

Sweebe, 712 N.W.2d at 714.

39

See Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 313 (Okla. Civ. App. 2004).

40

See Brown ex rel. Estate of Sanger v. Wright, 511 F. Supp. 2d 850, 853 (E.D. Mich. 2007).

41

See Zanglein, supra note 29, at 771.

42

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 875 (2009).

43

See Zanglein, supra note 29, at 771.

44

See id. at 771-72.

45

See Francis v. Donovan, No. 06-10080, 2006 WL 481672, at *3 (E.D. Mich. Feb. 28, 2006).

46

See Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 313-14 (Okla. Civ. App. 2004).

47

See, e.g., Cent. States, Se. & Sw. Area Pension Fund v. Howell, 227 F.3d 672, 679 (6th Cir. 2000); Couch v. Reinhold, No. 4:06-CV-146, 2008 WL 659513, at *6-7 (W.D. Mich. Mar. 6, 2008); Pardee, 112 P.3d at 316.

48

See, e.g., Johnson v. Slaton, No. 1:08-CV-57, 2008 WL 2308115, at *1, 3 (W.D. Ky. June 2, 2008); Brown ex rel. Estate of Sanger v. Wright, 511 F. Supp. 2d 850, 853 (E.D. Mich. 2007); Francis, 2006 WL 481672, at *2-3.

49

See Johnson, 2008 WL 2308115, at *3.

50

See Caryl A. Yzenbaard, George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 471 (2009); see also Pardee, 112 P.3d at 316 (“A [c]onstructive trust assumes that one party ... has title to certain property that another has a better right to.”) (alterations in original) (citing In re Bruner, 864 P.2d 1289, 1292 (Okla. Civ. App. 1993) (citation omitted)).

51

See Pardee, 112 P.3d at 316.

52

See Howell, 227 F.3d at 678-79; accord Guidry v. Sheet Metal Workers Nat’l Pension Fund, 39 F.3d 1078, 1081-83 (10th Cir. 1994) (en banc).

53

See, e.g., Couch v. Reinhold, No. 4:06-CV-146, 2008 WL 659513, at *5 (W.D. Mich. Mar. 6, 2008).

54

See, e.g., Howell, 227 F.3d at 678-79.

55

See, e.g., Couch, 2008 WL 659513, at *5.

56

Howell, 227 F.3d at 679.

57

Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 315-16 (Okla. Civ. App. 2004) (citing Cacy v. Cacy, 619 P.2d 200, 202 (Okla. 1980)).

58

See id.

59

See Sarabeth A. Rayho, Divorcees Turn About in Their Graves as Ex-Spouses Cash In: Codified Constructive Trusts Ensure an Equitable Result Regarding ERISA-Governed Employee Benefit Plans, 106 Mich. L. Rev. 373, 390-91 (2007).

60

See id. at 391.

61

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 868, 873 (2009).

62

See id. at 871; see also Estate of Altobelli v. IBM, 77 F.3d 78, 81(4th Cir. 1996) (“[T]he anti-alienation clause ... is a spendthrift device intended to ensure that employees’ accrued benefits are available for retirement ....”), overruled in part by Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865; Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 279(7th Cir. 1990) (“[the anti-alienation provision] focus[es] on the assignment or alienation of benefits by a participant, not the waiver of a right to payment of benefits made by a designated beneficiary”), overruled in part by Kennedy, 129 S. Ct. 865.

63

Keen v. Weaver, 121 S.W.3d 721, 727 (Tex. 2003), overruled by Kennedy, 129 S. Ct. 865.

64

See Kennedy, 129 S. Ct. at 871-73.

65

See id. at 872.

66

See Guidry v. Sheet Metal Workers Nat’l Pension Fund, 39 F.3d 1078, 1082 (10th Cir. 1994) (en banc).

67

See id. (“[T]he anti-alienation provision was designed ‘to further ensure that the employee’s accured [sic] benefits are actually available for retirement purposes.”’ (quoting H.R. Rep. No. 93-807, at 64 (1974), reprinted in 1974 U.S.C.C.A.N. 4670, 4734)).

68

See id. at 1082-83.

69

See id. at 1081-83.

70

Sweebe v. Sweebe, 712 N.W.2d 708, 712-713 (Mich. 2006); see also Keen v. Weaver, 121 S.W.3d 721, 727 (Tex. 2003) (holding that a waiver may be given for ERISA plan benefits in a divorce decree as long as voluntary and made in good faith), overruled in part by Kennedy, 129 S. Ct. 865.

71

See, e.g., Johnson v. Slaton, No. 1:08-CV-57, 2008 WL 2308115, at *3 (W.D. Ky. June 2, 2008) (holding that ERISA does not govern distributed proceeds and remanding to state court to determine the issue of whether the plaintiff was entitled to the proceeds under the divorce decree); see also Brown ex rel. Estate of Sanger v. Wright, 511 F. Supp. 2d 850, 853 (E.D. Mich. 2007); Francis v. Donovan, No. 06-10080, 2006 WL 481672, at *3 (E.D. Mich. Feb. 28, 2006).

72

See Hawxhurst v. Hawxhurst, 723 A.2d 58, 65-66 (N.J. Super. Ct. App. Div. 1998).

73

See Sweebe, 712 N.W.2d at 712.

74

See id.

75

See id. at 714.

76

See Staelens v. Staelens, 677 F. Supp. 2d 499, 508-09 (D. Mass. 2010).

77

See Sweebe, 712 N.W.2d at 714.

78

See id. at 710.

79

See id. at 714.

80

See Staelens, 677 F. Supp. 2d at 505-06. The Court specifically addressed footnote ten in the Kennedy decision, which left the door open for going after post-distributed proceeds through state law. See id. at 507; see also Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 875 n.10, 876 (2009).

81

See Staelens, 677 F. Supp. 2d at 510.

82

Id.

83

See id. at 508-10. The Court compared the language in this waiver to that of other cases that held that the right to retirement proceeds had been specifically relinquished. See id. (citing Wennett v. Capone, No 92-06560-A, 1996 WL 91931, at *1 (Mass. Super. Ct. Feb. 29, 1996)). The language used in the divorce waiver in Wennett stated, “The Wife waives all rights to the husbands [sic] Polaroid Retirement Funds, annuities, ESOP shares, future pension rights and all other retirement, savings or assets not covered by this agreement accumulated now or in the future.” Wennett, 1996 WL 91931, at *1.

84

See Staelens, 677 F.2d at 510-11. The Court reviewed evidence that showed that the decedent had many chances to change the designated beneficiary form and chose not to. See id. The facts showed that the human resources manager actually met with the decedent after his divorce to discuss the availability of naming a new beneficiary and that he chose not to do so at the time. See id.

85

See id. at 510.

86

See Hawxhurst v. Hawxhurst, 723 A.2d 58, 65-66 (N.J. Super. Ct. App. Div. 1998). Although each state has different requirements as to the enforceability of premarital agreements, generally courts require the following:

(a) voluntariness, (b) absence of fraud or deceit, (c) full disclosure of assets, and (d) fairness at the time the contract was signed (and possibly at the time of divorce). Many courts have also required that each party knew and understood what he or she was doing at the time he or she signed the contract.

Mary H. Schmidt, How Do I Love Thee? Let Me Document the Ways: A Fresh Look at Pre- and Post-Nuptial Agreements, in A.L.I., A.L.I-ABA Course of Study: Sophisticated Estate Planning Techniques 429, 433 (2006).

87

See Hawxhurst, 723 A.2d at 65.

88

See id. at 66.

89

See id. at 65.

90

See supra Part III (discussing why proceeds are no longer governed by ERISA once they are paid out in accordance with ERISA).

91

Cf. Hawxhurst, 723 A.2d at 65-66 (holding that the anti-alienation provision does not shelter assets from state law once the pension has been distributed to the named beneficiary). If a premarital agreement can be enforced in favor of an ex-spouse to recover post-distributed proceeds, then it follows that it may also be used to enforce an ex-spouse’s waiver of such proceeds in a challenge of retention. See id.

92

See Sweebe v. Sweebe, 712 N.W.2d 708, 714 (Mich. 2006).

93

See supra Part IV.A.; see also Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 316 (Okla. Civ. App. 2004) (citing Cacy v. Cacy, 619 P.2d 200, 202 (Okla. 1980)).

94

See Rayho, supra note 59, at 390-91.

95

See Yzenbaard, Bogert & Bogert, supra note 50, § 471.

96

In fact, the administrator of the estate may sue for a breach of contract claim on behalf of the estate. See 1 Am. Jur. 2d Abatement, Survival, and Revival § 85 (2005).

Under the common law, actions based on contracts, including quasi-contracts, or for procuring a breach of contract, generally survive the death of either party. In addition, under a statutory provision that all causes of action survive, causes of action for breach of contract that have not matured when one of the parties dies, or that the party could not have enforced while alive, may also survive.

Id.

97

See Unif. Marriage & Divorce Act § 306(e), 9 U.L.A. 249 (1998) (amended 1973) (“Terms of the agreement set forth in the decree are enforceable by all remedies available for enforcement of a judgment, including contempt, and are enforceable as contract terms.”).

98

See 66 Am. Jur. 2d Restitution and Implied Contracts § 1 (2001).

The word “restitution” was used in the earlier common law to denote the return or restoration of a specific thing or condition. In modern legal usage, its meaning has frequently been extended to include not only the restoration or giving back of something to its rightful owner and returning to the status quo, but also compensation, reimbursement, indemnification, or reparation for benefits derived from, or for loss or injury caused to, another.

Id.

99

See id.

100

See id.

101

See Rayho, supra note 59, at 391.

102

Keen v. Weaver, 121 S.W.3d 721, 725 (Tex. 2003), overruled in part by Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865 (2009); see also Manning v. Hayes, 212 F.3d 866, 870-72 (5th Cir. 2000); Clift v. Clift, 210 F.3d 268, 270 (5th Cir. 2000); Rhoades v. Casey, 196 F.3d 592, 598-99 (5th Cir. 1999); Hill v. AT&T Corp., 125 F.3d 646, 648 (8th Cir. 1997); Estate of Altobelli v. Int’l Bus. Machines Corp., 77 F.3d 78, 81-82 (4th Cir. 1996) overruled in part by Kennedy, 129 S. Ct. 865; Mohamed v. Kerr, 53 F.3d 911, 914 (8th Cir. 1995), overruled in part by Kennedy, 129 S. Ct. 865; Brandon v. Travelers Ins. Co., 18 F.3d 1321, 1325-27 (5th Cir. 1994), overruled in part by Kennedy, 129 S. Ct. 865; Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 280 (7th Cir. 1990), overruled in part by Kennedy, 129 S. Ct. 865; Lyman Lumber Co. v. Hill, 877 F.2d 692, 693 (8th Cir. 1989).

103

See Kennedy, 129 S. Ct. at 877.

104

See Keen, 121 S.W.3d at 725-26.

105

See id. at 724 (“Federal common law is a ‘necessary expedient’ that courts resort to when ‘compelled to consider federal questions which cannot be answered from federal statutes alone.”’ (citations omitted) (quoting Milwaukee v. Illinois, 451 U.S. 304, 314 (1981) (internal quotations omitted)).

106

Id. at 727. The requirements that a waiver be specific and entered into knowingly and voluntarily are known as the “voluntary waiver test.” Galvan v. SBC Pension Benefit Plan, No. SA-04-CV-333-XR, 2007 WL 1257113, at *2 n.3 (W.D. Tex. Apr. 30, 2007).

107

See Keen, 121 S.W.3d at 727.

108

See id. at 726.

109

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 877 (2009).

110

See Galvan, 2007 WL 1257113, at *2 n.3.

111

Id. (emphasis added).

112

See Kennedy, 129 S. Ct. at 877-78.

113

See id.

114

See id.

115

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 497 F.3d 426, 429 (5th Cir. 2007)(“Accordingly, the federal-common-law waiver approach is not applicable.”); cf. Galvan, 2007 WL 1257113, at *2 n.3 (stating that the imposition of a constructive trust to recover post-distributed proceeds would conflict with the common law voluntary waiver test used by the Fifth Circuit).

116

See Kennedy, 129 S. Ct. at 875 n.10.

117

In re Bradley, 501 F.3d 421, 432 (5th Cir. 2007) (quoting Omohundro v. Matthers, 341 S.W.2d 401, 405 (Tex. 1960)). To prevail on a claim for the imposition of a constructive trust, Texas law generally requires a claimant show: (1) actual fraud arising out of breach of an informal relationship of special trust or confidence that exists apart from the transaction in question, see, e.g., Meadows v. Bierschwale, 516 S.W.2d 125, 128-29 (Tex. 1974); (2) unjust enrichment of the wrongdoer, see, e.g., Hudspeth v. Stoker, 644 S.W.2d 92, 94 (Tex. App.--San Antonio 1982, writ ref’d); and (3) tracing to identifiable property, see, e.g., Meadows, 516 S.W.2d at 129; Peirce v. Sheldon Petroleum Co., 589 S.W.2d 849, 853 (Tex. Civ. App.--Amarillo 1979, no writ); see also, In re Kennedy & Cohen, Inc., 612 F.2d 963, 966 (5th Cir. 1980) (stating that federal law requires tracing of funds regardless of the state law requirements).

118

See generally Federal Employees’ Group Life Insurance Act (FEGLIA) of 1954, 5 U.S.C. §§ 8701-8716 (2006). “FEGLIA is a group life insurance program available to federal employees administered by the U.S. Office of Personnel Management, which purchases private life insurance policies under the program for the employees.” Jeffrey W. Stempel, Under Federal Employees’ Insurance Program, Change of Beneficiary Form Ineffective Absent Signature of Insured; Witness Affidavits Immaterial, 5 Conn. Ins. L.J. 839, 839(1998).

119

See 179 S.W.3d 35, 38 (Tex. App.--San Antonio 2005, no pet.).

120

See id.

121

See Prudential Ins. Co. v. Hickel, 121 F.3d 364, 367 (8th Cir. 1997). “It has been consistently held in regard to FEGLIA that a divorce decree cannot operate as a waiver....” Id.

122

The Office of Personal Management is the body that administers benefits governed by FEGLIA. See 5 U.S.C. § 8709(a).

123

See Fagan, 179 S.W.3d at 38.

124

See id. at 40.

125

See id.

126

See id. at 40, 47.

127

Id. at 42; see also Roberts v. Roberts, 560 S.W.2d 438, 439-40 (Tex. Civ. App.--Beaumont 1977, writ ref’d n.r.e.); Eonda v. Affinito, 629 A.2d 119, 123 (Pa. Super. Ct. 1993) (“[a] state court-imposed constructive trust [does not] contravene any of the federal interests underlying FEGLIA [and therefore is not preempted by FEGLIA]”); Kidd v. Pritzel, 821 S.W.2d 566, 575 (Mo. Ct. App. 1991) (holding that equity claims are not preempted by FEGLIA). But see Metro. Life Ins. v. Potter, 533 So. 2d 589, 590 (Ala. 1998) (holding that a state equity claim is preempted by FEGLIA).

128

See Fagan, 179 S.W.3d at 42-43.

129

Id. at 42.

130

See id. at 43.

131

See, e.g., Pardee v. Pers. Representative for the Estate of Pardee, 112 P.3d 308, 314-16 (Okla. Civ. App. 2004) (stating that after the proceeds have been distributed in accordance with state law, the goals of Congress have already been met and are no longer being compromised).

132

See, e.g., Elizabeth Khoury, HMO Liability After Aetna Health Inc. v. Davila: Are Patients’ Rights at Risk?, 91 Iowa L. Rev. 1621, 1637(2006) (“Congress intended the preemption clauses to ensure that employee benefit plan regulation [would be] exclusively a federal concern.”) (internal quotation marks omitted).

133

See Pardee, 112 P.3d at 314.

134

See Fagan, 179 S.W.3d at 45; see also Servicemembers’ Group Life Insurance Act (SGLIA), 38 U.S.C. §1970(g) (2006). SGLIA’s purpose is to provide “military personnel with the option of purchasing life insurance that they could not otherwise buy in the private insurance market.” David D. Haddock & Thomas D. Hall, The Impact of Making Rights Inalienable: Merrion v. Jicarilla Apache Tribe, Texaco, Inc., v. Short, Fidelity Federal Savings & Loan Ass’n v. de la Cuesta, and Ridgway v. Ridgway, 2 Sup. Ct. Econ. Rev. 1, 4(1983).

135

See Fagan, 179 S.W.3d at 45.

136

Id. at 44 (emphasis added) (quoting Ridgway v. Ridgway 454 U.S. 46, 70 (1981)) (internal quotations omitted).

137

Id. (quoting Ridgway, 454 U.S. at 71) (internal quotation marks omitted).

138

See id. at 44-45.

139

See generally ERISA, 29 U.S.C. §§ 1001-1461 (2006); see Lawrence W. Waggoner, Spousal Rights in Our Multiple-Marriage Society: The Revised Uniform Probate Code, 26 Real Prop. Prob. & Tr. J. 683, 698 n.38(1992).

140

See Waggoner, supra note 139, at 698 n.38.

141

See 27A C.J.S. Divorce § 11 (2009) (stating that the state legislature is responsible for determining the rules that govern divorce, subject to the limits imposed by the Supremacy Clause).

142

Buys v. Buys, 924 S.W.2d 369, 372(Tex. 1996) (citation omitted) (“If the agreement is worded so that we can give it a certain or definite legal meaning, it is not ambiguous and we construe it as a matter of law.”); see also McGoodwin v. McGoodwin, 671 S.W.2d 880, 882 (Tex. 1984).

143

See Metzger v. Metzger,No. 01-04-00893-CV, 2007 WL 1633445, at *7 (Tex. App.--Houston [1st Dist.] June 7, 2007, no pet.) (mem. op) (“Generally speaking, parties may contract as they wish concerning property awarded them in a divorce decree, and they may sue for breach of that contract.”); see also Chapman v. Abbot, 251 S.W.3d 612, 616(Tex. App.--Houston [1st Dist.] 2007, no pet.) (citation omitted).

144

See Killeen v. Lighthouse Elec. Contractors, L.P., 248 S.W.3d 343, 349(Tex. App.--San Antonio, 2007, no pet.). In order to prove there was a breach of the contract “the plaintiff must prove: (1) a valid contract between plaintiff and defendant existed; (2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4) the plaintiff sustained damages as a result of the breach.” Id. A valid contract requires “(1) an offer; (2) an acceptance; (3) a meeting of the minds; (4) each party’s consent to the terms; and (5) execution and delivery of the contract with the intent that it be mutual and binding.” Id.

145

See supra Part IV.B.

146

See Chapman, 251 S.W.3d at 616-17. A contract is unambiguous if it “is so worded that it can be given a certain or definite legal meaning or interpretation.” Id.

147

See id.

148

See id. at 617.

149

See id. at 616-17; cf. Staelens v. Staelens, 677 F.2d 499, 510 (D. Mass. 2010) (stating that in this case the language was not specific enough to relinquish the ex-spouse’s interests in the proceeds).

150

See Chapman, 251 S.W.3d at 617.

151

See Staelens, 677 F.2d at 510-11 (finding the language of the divorce decree to be unspecific, the court held that there was no genuine issue of material fact by considering outside evidence that the decedent actually met with the HR manager and chose not to change the designated beneficiary form post-divorce and that the decedent made statements that he intended to leave his money to his ex-spouse).

152

See Tex. Fam. Code Ann. § 4.003, 4.006 (West 2010); see also Schmidt, supra note 86, at 433.

153

See Tex. Fam. Code Ann. § 4.006.

154

Id.

155

See Beck v. Beck, 814 S.W.2d 745, 748-49 (Tex. 1991).

156

See Williams v. Williams,246 S.W.3d 207, 211(Tex. App.--Houston [14th Dist.] 2007, no pet.).

157

See id.

158

See id. at 213.

159

Revocation-by-divorce statutes were used as a means to remove an ex-spouse as beneficiary to a will or other non-probate property upon divorce. See Rayho, supra note 59, at 373.

160

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan,497 F.3d 426, 429(5th Cir. 2007).

161

Stephenson, supra note 13.

162

See Rayho, supra note 59, at 390, 392-93.

163

See id. at 392-93.

164

See id. at 392-94 (discussing how the traditional revocation-by-divorce statutes are thought to be preempted by federal law and advocating that constructive trusts are a better alternative because they would not be preempted by federal law). For more discussion on how revocation-by-divorce statutes with regards to ERISA-governed retirement plans are preempted by ERISA, see Egelhoff v. Egelhoff, 532 U.S. 141, 144, 150 (2001).

165

See supra Part IV.A.

166

See Rayho, supra note 59, at 395; see also supra note 26 and accompanying text.

167

See Rayho, supra note 59, at 395.

168

See id.

169

See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 875 n.10 (2009).

a1

J.D. 2010, South Texas College of Law, Magna Cum Laude. The Author would like to thank all of those who helped in the production of this Comment. The Author would like to give special thanks to the South Texas Law Review and the South Texas College of Law faculty for providing the support throughout this endeavor.

52 STXLR 127

End of Document

 

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