The passage of the Retirement Equity Act (“REA”) in 1984 marked a transformative shift in how retirement benefits are handled in cases of divorce, particularly for spouses who relied on their partner’s income for financial security. Prior to the REA, the Employee Retirement Income Security Act of 1974 (“ERISA”) protected retirement funds from any form of assignment, leaving spouses vulnerable to losing their share of benefits during a divorce settlement. The REA’s introduction of Qualified Domestic Relations Orders (“QDRO”s) offered a critical solution, it permitted QDROs to supersede ERISA’s anti-assignment rules, allowing for equitable division of retirement assets under court orders while upholding ERISA’s overarching goals. The question of what is a QRDO, especially what makes it “qualified,” was the subject of a recent decision by the Ninth Circuit Court of Appeals in Hartford Life & Accident Ins. Co. v. Valois, No. 23-3286, __ F. App’x __, 2024 WL 4678055 (9th Cir. Nov. 5, 2024).

Marilyne Valois was the named beneficiary on a Hartford Life and Accident Insurance Company insurance policy owned by her boyfriend, the decedent, which was the one and only life insurance policy he owned. Haili Kowalski had previously been married to the decedent and separated from him. Kowalski and the decedent had a Legal Separation Agreement (“LSA”) which required him to maintain a life insurance policy in the amount of $800,000 with Kowalski’s minor son as beneficiary. Upon the decedent’s death, Kowalski and Valois both made competing claims to the benefits of the Hartford policy and Hartford filed an interpleader action for the court to determine the proper beneficiary. Valois contended that the Kowalskis’ separation agreement was invalid because it did not “clearly identify” the Hartford benefit plan, or any plan whatsoever, and merely required the decedent to “carry and maintain a policy of life insurance.” Valois also argued that because the decedent was only eligible for $493,000 in life insurance coverage, the separation agreement’s $800,000 requirement “required the plan to provide increased benefits.”

The district court disagreed with both of these arguments, ruled that the separation agreement was an enforceable QDRO. Therefore, Kowalski’s son had superior rights over Valois to the Hartford policy benefits based on the terms of the LSA. The court issued judgment in Kowalski’s favor.

Valois appealed to the Ninth Circuit Court of Appeals and took the position that the LSA was not a QDRO under ERISA because the LSA did not clearly specify the Hartford policy and she should thus receive the Hartford benefits as the named beneficiary. ERISA requires a QDRO to clearly specify each plan to which the it applies. 29 U.S.C. § 1056(d)(3)(C)(iv). However, courts require only “substantial compliance” with ERISA’s specificity requirements. Hamilton v. Wash. State Plumbing & Pipefitting Indus. Pension Plan, 433 F.3d 1091, 1097 (9th Cir. 2006) 3 23-3286 (citing Trs. of Dirs. Guild of Am.-Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 420 (9th Cir. 2000)).

The Ninth Circuit affirmed the district court’s decision, holding that the LSA was compliant with ERISA’s requirements and was a valid QDRO. The Ninth Circuit reasoned that the purpose of ERISA’s specificity requirements is to avoid uncertainty related to a beneficiary’s identity. Because the decedent had one life insurance policy, the Hartford policy at issue, there was no doubt as to which policy was referred to in the LSA. The terms of the LSA were clear in requiring Kowalski’s son to be the beneficiary of the policy, thus his right to the Hartford benefit was superior to Valois’ claim despite her being the named beneficiary on the policy.

Valois also argued that the LSA was not a QDRO because it increased the Hartford’s payment burden and a QDRO must not “require a plan to provide increased benefits.” 29 U.S.C. § 1056(d)(3)(D)(ii). However, the Hartford benefits under the plan were $493,000, substantially less than the $800,000 required by the LSA. The court noted that the LSA was an agreement between Kowalski and the decedent, to which Hartford was not a party, that the LSA did not require Hartford to pay any more than the plan benefit ($493,000), and that Kowalski was not requesting more than the Hartford plan allowed, and the LSA therefore did not require Hartford to provide increased benefits.

Because the Hartford policy at issue here was the decedent’s only life insurance policy, there was no possibility of confusing it with another policy. Therefore, even though the LSA did not clearly specify the Hartford policy, it did not raise any question as to which policy to which it might be referring, and was considered to be a valid QDRO and therefore subject to ERISA, despite the decedent presumably naming Valois as the beneficiary.