Most people probably believe that their divorce settlement agreement or judgment is the final word on the distribution of their marital assets. While that is true in many cases, it is not necessarily so. Understanding when other things may supersede your divorce agreement and dictate a different distribution scheme can be essential to negotiating your settlement agreement effectively. Accomplishing these goals often requires representation from a knowledgeable Maryland divorce lawyer experienced in the various factors – like federal preemption — that can influence a divorce outcome.
One common scenario where this occurs is when your case implicates federal law. How might federal law factor into a Maryland divorce? A recent Montgomery County case offers an illustration.
M.C. and B.C. married in 1999. The wife, then a federal worker, opened a thrift savings plan (TSP) under the auspices of the Federal Employees’ Retirement System Act. On the account’s paperwork, she listed her husband as the sole beneficiary of her TSP.
The couple divorced in 2010. During the divorce process, the couple worked out a settlement agreement. One of the agreement’s terms stated that the husband waived (gave up) all rights and claims to the wife’s TSP account.
Fast forward to 2019, when the ex-wife passed away and the federal government gave 100% of the account’s $700,000+ value to… the ex-husband. The woman’s sister, acting as the personal representative of the woman’s probate estate, filed a civil action seeking the funds. The trial court sided with the estate but the Appellate Court reversed, declaring the ex-husband the rightful recipient of the funds.
How could the ex-husband possibly have won when the settlement agreement’s terms were clear? He won because the settlement agreement’s terms did not matter at all.
Two realities controlled. One was the FERSA. The regulations that implemented the FERSA say that if a valid TSP “beneficiary has been designated, that designation remains in effect until properly changed by the TSP account holder… To change a designation of beneficiary, the participant must submit to the TSP recordkeeper a new TSP designation of beneficiary… A participant cannot use a will to change a TSP designation of beneficiary.” In other words… no new beneficiary designation paperwork, no new beneficiary.
The second – and crucial – factor was that the wife never submitted a new beneficiary designation form or otherwise changed the beneficiary of her TSP in the nine years between her divorce and her death.
Under Maryland law, the ex-husband clearly had no claim to the funds. However, according to the court, the FERSA, as a federal statute, took precedence, preempted Maryland law, and demanded distribution of the fund to the ex-husband.
What the U.S. Supreme Court Has Said
The outcome of this Maryland case closely mirrors a 2013 U.S. Supreme Court ruling involving a Virginia man’s asset. In that dispute, the account was a life insurance policy instead of a TSP, but the legal issues were highly similar.
The man, a federal employee, married his wife, Judy, in 1989. In 1996, he named Judy the sole death beneficiary of his Federal Employees’ Group Life Insurance Act life insurance policy. In 1998, the couple divorced. In 2002, the man married his new wife, Jackie. Six years later, the man died. At no point in the decade between the man’s 1998 divorce and 2008 death did he change the beneficiary designation. As a result, the federal government disbursed the policy’s death to… Judy, the ex-wife.
The man’s widow sued but lost. Even though Virginia law clearly stated that any “beneficiary designation in any contract that provides a death benefit to a former spouse where there has been a change in the decedent’s marital status” is deemed revoked, the FEGLIA said that an employee’s right of designation “cannot be waived or restricted.” In other words, whatever is on the beneficiary designation paperwork controls. The FEGLIA, as a federal statute, preempted Virginia law and required giving the policy proceeds to the ex-wife.
You may wonder… how likely is federal preemption to affect my divorce settlement, really? The odds are higher for Marylanders than most given how many are federal workers. If you are a federal worker with a federal employees’ retirement plan, life insurance policy, or other similar asset created by a federal statute, you need to know that that the U.S. code potentially could preempt what you lay out in a divorce agreement.
All this goes to show that, even when you might think your divorce is a straightforward matter, it may not actually be. Ensuring you get a fair outcome is often more complicated than you could have imagined, which is why it pays to have knowledgeable legal representation backing you. The experienced Maryland family law attorneys at Anthony A. Fatemi, LLC are here to be the powerful and effective advocacy team you deserve. Contact us today at 301-519-2801 or via our online form to set up your consultation.