What happens when your spouse liquidates a retirement account after the divorce but before you get your share of it?  Can the court enter a new order letting you get a share of another account to make up for it?  Or are you just screwed?  The Virginia Court of Appeals faced these questions in Forest v. Forest, Record No. 0836-12-4 and held that you are not just screwed.

In that case, the parties entered into a Marital Settlement Agreement that was later incorporated into the trial court’s Final Order of Divorce.  The Marital Settlement Agreement equalized the value of their retirement accounts as follows:

 “15. a. (i) The Wife’s individual retirement account (IRA) and the Husband’s 401(k) plan, shall be equalized through a transfer from the Husband’s 401(k) plan of the amount necessary to effect such equalization, based on the values as of the date of the separation, to-wit: April 1, 2010, plus any appreciation or less any depreciation from the date of separation to the time of transfer, said transfer to be effected through the entry of one or more Qualified Domestic Relations Orders (“QDROs”), such transfer to be in satisfaction of the Husband’s marital interest in said plans and/or accounts.”

Husband’s 401(k) plan was his Morgan Stanley Smith Barney, LLC retirement account and the amount necessary to equalize was $26,000.  Husband, nevertheless, liquidated most of this retirement account leaving him still short $20,000.  Husband, fortunately, had another retirement account that would leave him short only $6,000.  Husband, however, died before another qualified domestic relations order (QDRO) was entered transferring $14,000 from this extra retirement account into Wife’s IRA.

Wife, nevertheless, asked that the trial court to enter the aforementioned QDRO transferring $14,000 from this extra retirement account into Wife’s IRA.  Husband’s executor, however, objected.  He claimed that the court lacked authority to enter this QDRO under Va. Code § 20-107.3(K)(4).  He argued that entering this QDRO would modify the terms of the Marital Settlement Agreement and the Final Order of Divorce because it would change the transfer from the one originally agreed upon and ordered (i.e., from Husband’s Morgan Stanley Smith Barney, LLC 401(k) plan to Wife’s IRA) to one never agreed upon nor ordered (i.e., from Husband’s Desert Mutual Thrift Plan to Wife’s IRA).[1]  Wife argued that such modification is permissible because the resulting order would reflect the expressed intent of the Final Order of Divorce.  Husband’s argument won in the lower court.  Wife appealed.

Va. Code § 20-107.3(K)(4) provides the following language permitting only very limited modification of an equitable distribution order after divorce:

The court shall have the continuing authority and jurisdiction to make any additional orders necessary to effectuate and enforce any order entered pursuant to this section, including the authority to . . . [ ] Modify any order entered in a case filed on or after July 1, 1982, intended to affect or divide any pension, profit-sharing or deferred compensation plan or retirement benefits pursuant to the United States Internal Revenue Code or other applicable federal laws, only for the purpose of establishing or maintaining the order as a qualified domestic relations order or to revise or conform its terms so as to effectuate the expressed intent of the order.

So what was the expressed intent of the order?  Was it to provide Wife with her share of the retirement funds through an exclusive transfer from Husband’s Morgan Stanley Smith Barney, LLC 401(k) plan to Wife’s IRA?  Or was it to establish Wife’s property right to $26,000 no matter what mechanism is used to get it to her?

The Virginia Court of Appeals held in Forest v. Forest, Record No. 0836-12-4 that the expressed intent was only to establish her property right to $26,000.  The agreed upon source of payment was not itself a critical term of their contract, such as the timing or amount of payments, and therefore changing this source would not alter their substantive rights or otherwise be inconsistent with the expressed intent of the Final Order of Divorce.  The trial court therefore erred when it refused to modify the Final Order of Divorce to allow for entry of any additional QDRO needed to effectuate Wife’s receipt of the $26,000.

So why did the court hold that the expressly agreed upon transfer from Husband’s 401(k) plan to Wife’s IRA was not an essential term of the contract when it was nevertheless significant enough to find itself in the contract? Well, the court, using much nicer language than me, says that it can’t let jerks win in these situations: “To hold otherwise would conceivably permit a party to enter into a property settlement agreement directing the entry of a QDRO to divide a retirement account – and then thwart the terms of the agreement by depleting that retirement account’s funds before a QDRO could be entered.  Our precedents neither encourage approbation and reprobation nor countenance fraudulent behavior.”