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Compliance October 14, 2004
Husband Cannot Have Access to Ex-Wife's 401(k) Assets
October 14, 2004 (PLANSPONSOR.com) - A bankruptcy
court in North Carolina has ruled that a former husband does
not have an enforceable lien on his ex-wife's 401(k) funds
because a qualified domestic relationship (GDRO) order was
not created upon divorce.
Reported by Kip McDaniel
>Lawrence and Daisy Dye divorced in 1998, and in March of 2003 there was a final order regarding the distribution of assets under the divorce judgment in state court. In the order, the state court found that Lawrence was entitled to 60% of the martial assets, and that in order to distribute the assets, Daisy was to be the owner of their house while Lawrence was entitled to a cash distribution of $48,724 as well as half of his Tier II Railroad Retirement benefits. The court ordered that a deed of trust be executed on the house to secure the monthly obligation owed by Daisy to Lawrence, but when Daisy failed to make payments, Lawrence brought a contempt proceeding in court.
>Daisy subsequently filed for Chapter 13 bankruptcy, while Lawrence filed a proof of claim for the amount of money he was owed by his former wife. Lawrence sought relief from a court-ordered automatic stay in order to foreclose on the deed of trust, and also wished to enforce liens on her 401(k) account and pension plan. He asserted that this lien was granted under the equitable distribution order of March 2003.
>However, in the bankruptcy court ruling, Judge William Stocks found that no lien was created against the account, and thus no lien was enforceable. Since the plan was governed by the Employee Retirement Income Security Act (ERISA), and due to ERISAs anti-alienation provision, the plan could not become property of their owner’s bankruptcy estate. Also, Stocks, ruled that no QDRO was created by the March 2003 final order.
>Stocks did allow, however, for the automatic stay to be modified permitting Lawrence to petition the state court to issue a QDRO. This would allow Lawrence’s railroad pension to be divided between him and his former wife.
>The state court also allowed the implementation of an appropriate setoff against the amount that Daisy owed her husband under the original order of March 2003.
“Since Mr. Dye has no enforceable lien against such interests, it follows that he is not entitled to relief from the automatic stay as to those interests,” Stocks asserted in his decision.
>The case, Dye Bankr. M.D.N.C., No. 03-12516C-13G, 10/4/04, is available at the North Carolina Bankruptcy court Website www.ncmb.uscourts.gov under ‘Opinions-Index’.