The scenario is not difficult to imagine: An employee designates her spouse as the primary beneficiary under her employer’s life insurance and retirement benefit plans. Years later, the couple divorces, and in the marital settlement agreement, the ex-spouse waives his right to the employee’s life insurance and retirement benefits. However, the employee forgets to change the beneficiary designation on her employer’s form. The employee then dies.

Under ERISA, the plan administrator must distribute the proceeds under the terms of beneficiary designation form. Unless the marital settlement agreement qualifies as a QDRO, it does not enter the picture. Consequently, in this scenario, the plan administrator must distribute the benefits to the ex-spouse as the named beneficiary. Kennedy v. DuPont Savings and Investment Plan, 555 U.S. 285, 129 S. Ct. 865 (2009).

However, this outcome does not prevent the employee’s estate from seeking the proceeds from the ex-spouse. This was the scenario in Andochick v. Byrd, slip opinion 12-1728 (March 4, 2013), in which the Fourth Circuit Court of Appeals acknowledged that it was answering a question left open by the Supreme Court in the Kennedy decision. In Andochick, the employee’s estate sought an injunction in state court, asking the Court to find the ex-spouse in contempt of the marital settlement agreement and ordering him to renounce his rights to the life insurance and retirement benefits under the employee benefit plan. Meanwhile, the ex-spouse filed an action in federal court, seeking a declaratory judgment that the plan administrator must distribute the plan benefits to him, under Kennedy. The United States District Court for the Eastern District of Virginia held that, while the plan administrator would be required to adhere to the beneficiary designation, the employee’s estate could enforce the marital settlement agreement in state court against the ex-spouse. Andochick v. Byrd, 2012 U.S. Dist. Lexis 65903 (E.D. Va. 2012). The Fourth Circuit Court of Appeals affirmed the District Court, finding that the state court’s injunction affected the parties’ rights post-distribution, even if the court entered the injunction prior to the plan’s distribution. In this way, the state court’s order did not interfere with ERISA’s goals in efficient plan administration recognized by the Supreme Court in Kennedy, the Court held.

The lesson: An estate can sue the employee benefit plan beneficiary before the plan distribution is made, putting in place the threat of a court’s contempt powers by the time the distribution is made.