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Benefits by any other name …: Appellate court sees through ex’s bid to cloak retirement pay

August 01, 2015
By Dan Stefani
Dan Stefani is a principal at Katz & Stefani and primarily handles family law matters that require detailed analyses of complex transactions and business valuations. His work on behalf of mainly high net worth clients, as well as spouses of high net worth individuals, involves valuations of closely held corporations, partnerships and other entities, child custody and support issues as well as paternity and domestic violence.

On May 25, the Illinois Appellate Court, 4th District, rendered an opinion in In re Marriage of Benson. In Benson, the court affirmed the trial court’s ruling that, 15 years after a divorce judgment, the ex-wife was entitled to disability pension rights from the ex-husband which were not awarded to her in their judgment.

In 1999 following trial on all issues, the court, in part, awarded the wife “a one-half interest in husband’s retirement plan.” The judgment was silent as to granting the wife any portion of any disability benefits held by the husband.

Nine years following the judgment, the husband, a firefighter, began receiving disability benefits at age 59 due to a work-related injury.

At that time, the ex-husband was eligible to retire and draw his retirement pension. Instead, he began drawing disability benefits.

In June 2013, the ex-wife filed a petition to enforce the terms of the court’s April 1999 judgment alleging that the ex-husband was required to pay a portion of his disability benefits retroactive to his receipt of them in 2008 because the firefighters’ pension plan description clearly stated that benefits through the plan included both retirement and disability benefits for participants.

The ex-wife also argued that by electing to receive disability pension benefits instead of his retirement pension, the ex-husband had refused permanently to share any of his pension rights with the ex-wife because the ex-husband was not required to convert his disability pension to a regular retirement pension.

The ex-husband argued that the ex-wife’s petition should be dismissed because the pension benefits had already been divided in the 1999 judgment and he was not receiving retirement benefits but was receiving disability benefits.

The trial court found the ex-husband’s disability benefits were in the nature of a disability pension and as a result, the ex-wife was entitled to a fractional interest in those benefits going forward as well as a portion of the previous payments going back to 2008.

On appeal, the ex-husband argued that the trial court erred because his disability benefits were not retirement benefits and the 1999 judgment did not address disability benefits. The ex-husband also claimed that the ex-wife’s request was barred by laches.

The first question was whether it was reasonable for the trial court to consider the ex-husband’s disability benefits as part of his retirement plan. In reviewing the Illinois Pension Code and other Illinois case law, the court concluded that the ex-wife was entitled to a one-half interest in the ex-husband’s retirement plan and that the plan description clearly stated that the benefits through the plan included both retirement and disability benefits for its participants. The court looked to the 3rd District opinion of In re Marriage Schurtz, 32 Ill.App.3d 1123, 891 N.E.2d 415 (2008 Ill. App. 3 Dist.).

In Schurtz, the parties entered into a marital settlement agreement that was silent as to the division of any disability benefits. In reaching its decision in Schurtz, the court distinguished two situations. First, when a disabled person is not yet eligible for retirement pay and is receiving disability benefits, the right to receive retirement benefits does not include a grant of any share of disability income because the disability pay is meant to replace the disabled person’s income and not act as retirement pay.

However, when a disabled person is entitled to receive retirement pay and is receiving disability income instead, a marital settlement agreement and/or judgment providing the ex-spouse with a portion of only the retirement benefits can be reasonably interpreted as granting the ex-spouse a portion of what would be the disabled person’s normal retirement benefits, whether paid in normal retirement or disability retirement benefits.

Similarly here, the ex-husband was eligible to retire and receive retirement benefits at the time he began receiving disability benefits. The court ultimately concluded that the ex-husband’s payments, even though considered disability benefits, were essentially retirement benefits. Therefore, the ex-wife was entitled to receive her share as set forth in the original 1999 judgment.

The ex-husband then argued that the award of past-due benefits retroactively was error. The appellate court found that the trial court did not modify the original 1999 dissolution judgment. Rather, it construed the judgment as always having included the disability benefits as part of the ex-husband’s retirement plan. Consequently, the court was not creating a new property right in its 2014 order.

Finally, the ex-husband argued that the ex-wife’s claim was barred by the doctrine of laches because she waited more than five years to raise the claim after his receipt of disability benefits. The appellate court pointed out that the affirmative defense of laches has two fundamental elements: (1) the lack of due diligence by the party asserting the claim; and (2) prejudice to the party asserting laches. The appellate court stated that the ex-husband failed to raise the defense appropriately in the trial court and, therefore, his claim in the appellate court was waived.

This opinion raises several issues for the divorce practitioner to consider when drafting a settlement agreement and/or submitting a proposed judgment at the end of trial. It is imperative that the practitioner review all retirement plan descriptions and capture all benefits and not just the obvious retirement benefits.

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