New Illinois Case-Division of Retirement Benefits

In re Marriage of Culp, Ill. App. Ct., No. 4-09-0605 (per Knecht) (decided March 26, 2010)

Facts:

The husband had a defined benefit plan through his employment valued at approximately $84,000 as of April 20, 1999, the date of dissolution of marriage.  The settlement agreement states the retirement benefits are to be “equally divided” as of April 20, 1999, pursuant to a separate Qualified Illinois Domestic Relations Order (QILDRO).  He contends the parties intended his former wife’s share of the marital portion to be $42,000 – exactly half of $84,000, which was the pension’s value as of the dissolution date. Because the husband was not near retirement at the time of dissolution, the trial court reserved jurisdiction for the entry of a QILDRO later. The husband argued his former wife was not entitled to any interest or cost-of-living adjustments on her share of the pension past the date of dissolution. In January 2009, the wife filed a motion for entry of a (QILDRO) including a proposed formula for determining the marital portion of Husband’s pension and dividing it between the parties.  Finding the proposed QILDRO conformed to the parties’ settlement agreement, the trial court ordered Husband to sign his consent to the QILDRO.

Question

Did the trial court err in finding Wife’s proposed QILDRO conformed to the parties’ settlement agreement and in its use of the customary Hunt formula to divide the pension’s marital portion?

Holding:

No. The parties clearly intended to have a QILDRO entered, and the trial court did not abuse its discretion by dividing the benefits using the customary formulaic approach under Hunt

Reasoning:

Limiting the wife’s share to $42,000 would allow the husband the marital portion’s entire growth in value between the date of dissolution and the date of his retirement, rendering the parties’ shares of the marital estate unequal. Accordingly, the husband’s interpretation of the agreement (that wife should receive half of the value of his pension as of the date of the dissolution of marriage, and no interest or growth) was unreasonable. The settlement does not state the wife shall receive $42,000. Rather, it lists the dissolution date for purposes of ascertaining the duration of the marriage. Both the value of the pension and the duration of the marriage are set forth to assist in the later assessment and division of the pension’s marital portion. The provision for entry of a separate QILDRO further evidences the parties’ intent to ascertain the value of and equally divide the marital portion of the pension at a later date.

Husband’s argument that the parties agreed to freeze Wife’s share of the pension at the dissolution date fails to award Wife the benefit of deferring receipt of her share of the pension until Husband retires. The court reasoned that both the wife and the husband shared in the risks that husband would change jobs or die before retiring, thereby reducing the defined benefit ultimately received at retirement. Therefore, equity requires they also share in the benefits of unforeseen increases in the value of the pension as well. Further, the wife had no incentive to delay receipt of a flat lump-sum payment at the time of dissolution.  The only reasonable interpretation of the parties’ settlement agreement is that they knew the marital portion would grow in value during the period between the dissolution of marriage and the husband’s’ retirement and thus opted to wait to equally divide the pension until its value fully matured and became ascertainable. 

The  parties’ settlement agreement used the reserved-jurisdiction approach, in which they elected to distribute the marital portion of the pension upon Husband’s retirement instead of awarding the wife her share in a lump sum immediately following the April 1999 dissolution.  Under this approach, a QILDRO is necessary to direct the applicable governmental retirement system (husband’s employer) to pay a portion of the pension to a payee other than the pension holder.  The parties agreed to divide the marital portion of the pension “equally” pursuant to the entry of a QILDRO and the trial court incorporated the parties’ separation agreement into its September 1999 supplemental order. And in 2006, the General Assembly included within a QILDRO the formula by which to divide the martial portion of a pension benefit, commonly known as the Hunt formula. In re Marriage of Hunt, 78 Ill. App. 3d 653, 397 N.E. 2d 511 (1979).

Following In re Marriage of Richardson, 381 Ill. App. 3d at 47, 884 N.E.2d 1246 (2008), it was proper to use the Hunt formula in a case such as this, in which the parties’ settlement agreement does not have a provision specifying the formula to be used in dividing the marital portion of the pension. The parties intended to divide the marital portion once the pension had fully matured, presumably at the time of husband’s retirement. The parties’ agreement merely indicated each party would receive an equal share of the marital portion, but the agreement contained no other language indicating how to value the marital portion at the time of payout.  The trial court correctly found that the parties intended to divide the pension by the “customary formulaic approach” supported by their use of the reserved-jurisdiction approach, later entry of a QILDRO and lack of language in their settlement agreement that conflicted with the customary formulaic approach set forth in Hunt.

Affirmed.

Analysis: As a matter of law, there is nothing particularly novel here. At its essence, this really is a contract interpretation case. I think the case is well reasoned. Justice Knecht used a creative and logical analysis to get to the right result.  The real lesson of the case is to make sure agreements that reserve issues clearly spell out in detail the intent of the parties. Had the agreement specifically provided that the wife would be entitled to her proportionate share of “future earnings, interest, gains or losses, etc.”, lots of attorneys fees and lost sleep could have been avoided. Prescience and careful drafting pay off!  -SNP

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