The US Court of Appeals for the Ninth Circuit recently ruled that state courts have jurisdictional authority to determine whether domestic relations orders (DROs) satisfy the requirements of qualified domestic relations orders (QDROs) under ERISA. Beginning as a routine divorce proceeding relating to the division of pension benefits, the case at hand took a deadly turn when, prior to the issuance of a DRO assigning a portion of a participant’s 401(k) account to his wife, the husband murdered his wife and shot the state court judge who was presiding over the divorce. After the wife’s death, her estate moved for the entry of a DRO memorializing the oral orders entered by the divorce judge before the murder. The state court responded with a posthumous order, entered as of a date when the wife was still alive. The husband appealed the order to the Nevada Supreme Court, arguing that there was no valid QDRO in place before his wife’s death. The court disagreed and ruled that the order was a valid QDRO under ERISA.
A complicated series of actions and appeals ultimately sent the case to the 9th Circuit, where the husband argued that the ruling by the Nevada Supreme Court was not binding because state courts have no jurisdiction to determine whether DROs are QDROs. The 9th Circuit disagreed, ruling that a state court is “a court of competent jurisdiction” and is therefore empowered under ERISA to determine the qualification of an order. According to the appeals court, ERISA provides state courts with concurrent jurisdiction over cases “to recover benefits” or “to enforce…or to clarify” rights under the terms of the plan. Moreover, it is state family law, not ERISA, that creates, recognizes, or assigns the alternate payee’s right to plan benefits. In the course of proceedings to enforce, clarify, or collect on rights to benefits under an ERISA plan, a state court may be required to determine the qualification of a DRO. Because a state court has concurrent jurisdiction over these proceedings, it also has jurisdiction “to decide the intermediate question of whether or not the DRO is a QDRO.”
In a related issue, the court also held that “administrative exhaustion” was not required before the issue could be decided by the state court. This means that the plan administrator need not be given the opportunity to determine whether the DRO is a QDRO before a suit is filed. The court cautioned, however, that a court should consider whether and why the litigant failed to present the DRO to the plan administrator for a QDRO determination before filing suit. (Mack v. Kuckenmeister, 9th Circ, 2010)