Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-94-09011/USCOURTS-ca10-94-09011-0/pdf.json

Parties Involved:
Commissioner of Internal Revenue
Appellee
Arthur C. Hawkins
Appellant

Document Text:

Patrick Fisher 

Clerk 

UNITED STATES COURT OF APPEALS 

Tenth Circuit 

Byron White United States Courthouse 

1823 Stout Street 

Denver, Colorado 80294 

(303) 844-3157 

June 18, 1996 

Elisabeth A. Shumaker 

Chief Deputy Clerk 

TO: ALL RECJPIENTS OF THE CAPTIONED OPJNION 

RE: 94-9009/9011 Hawkins v. CIR 

June 14, 1996 by The Honorable DavidM Ebel 

Please be advised of the following correction to the captioned decision: 

The file stamp date is incorrect on all but the electronic copies. The correct date 

of filing is June 14,1996. 

Please make the appropriate correction to yom copy. 

Very truly yoms, 

Patrick Fisher, Clerk 

~711~ Beth Morris 

Deputy Clerk 

Appellate Case: 94-9011 Document: 01019756220 Date Filed: 06/18/1996 Page: 1 
PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

ARTlillR C. HAWKINS, 

Petitioner-Appellant, 

FILED 

VDlted States Court fl Appall Teath Circuit 

JUN 13 1996 

PATRICK FISHER 

Clerk 

v. 

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No. 94-9011 

CO:tvfMISSIONER OF INTERNAL 

REVENUE, 

Respondent -Appellee. 

GLENDA R. HAWKINS, 

Petitioner-Appellee, 

v. 

COl\IIMISSIONER OF INTERNAL 

REVENUE, 

Respondent-Appellant 

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No. 94-9009 

Appeal from the United States Tax Court 

(T.C. Nos. 30310-91, 28446-92) 

Appellate Case: 94-9011 Document: 01019756220 Date Filed: 06/18/1996 Page: 2 
Douglas G. Schneebeck ofModrall) Sperling) Roehl, Harris & Sisk, P.A., Albuquerque, 

New Mexico, (Stuart R. Butzier, with him on the brief) for Petitioner-Appellant Arthur C. 

Hawkins. 

Patricia Tucker of Laflin, Lieuwen, Tucker, Pick & Heer, P.A., Albuquerque, New 

Mexico for Petitioner-Appellee Glenda R. Hawkins. 

Robert W. Metzler, United States Department of Justice, Tax Division, Washington, 

D.C., (Loretta C. Argrett, Assistant Attorney General, and Kenneth L. Greene, with him 

on the brief) for Respondent-Appellee/Respondent-Appellant Commissioner of Internal 

Revenue. 

Before EBEL and HOLLOWAY, Circuit Judges, and BROWN, District Judge.* 

EBEL, Circuit Judge. 

These two consolidated appeals present the question whether husband or wife 

should bear the income tax burden of a $1 million pension distribution made to the wife 

pursuant to a marital dissolution decree. Resolution of this question turns on whether the 

marital settlement agreement incorporated into the parties' dissolution decree constitutes a 

"qualified domestic relations order" ("QDRO") within the meaning of section 414(p) of 

* The Honorable Wesley E. Brown, Senior District Judge of the District of Kansas, 

sitting by designation. 

Appellate Case: 94-9011 Document: 01019756220 Date Filed: 06/18/1996 Page: 3 
the Internal Revenue Code. 26 U.S.C. § 414(p). The Tax Court below held that the 

incorporated settlement agreement did not satisfy the statutory definition of a QDRO and 

ordered the husband to pay the tax. Hawkins v. Commissioner, 102 T.C. 61 (1994). We 

have jurisdiction under 26 U.S.C. § 7482(a)(I) and now reverse. 

BACKGROUND 

Appellant Arthur C. Hawkins ("Arthur") and Appellee Glenda R. Hawkins 

("Glenda") were married on July 17, 1965. Arthur, an orthodontist, was the president and 

sole shareholder of Arthur C. Hawkins, D.D.S., P.A., a New Mexico professional 

corporation. In 1972, Arthur established the Arthur C. Hawkins, D.D.S. Pension Plan 

(the "Plan") for the benefit of the corporation's employees, and named himself the sole 

trustee and administrator of the Plan. As of July 31, 1986, the value of Arthur's accrued 

benefit under the Plan was $1,072,932.97. 

On January 5, 1987, Arthur and Glenda entered into a Marital Settlement 

Agreement (the "Agreement") as part of a divorce proceeding pending in the Second 

Judicial District Court, County of Bernalillo, State of New Mexico (the "divorce court"). 

The provisions of the Agreement were incorporated by reference into the final marital 

dissolution decree issued by the divorce court on January 7~ 1987 (the "Dissolution 

Decree"). The relevant portions of the Agreement provide as follows: 

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6. WIFE'S CO:M1yfUNITY PROPERTY: As a compromise distribution of the 

community property, [Glenda] shall receive as her separate property: 

(a) Cash of One Million Dollars ($1,000,000.00) from [Arthur]'s share 

of the Arthur C. Hawkins, D.D.S. Pension Plan .... 

7. HUSBAND'S COMMUNITY PROPERTY: As a compromise distribution 

of the community property, [Arthur] shall receive as his separate property: ... 

(l) A.C. Hawkins, D.D.S., P.A., including all equipment, accounts 

receivable, inventory, goodwill and pension plan, net value, approximately 

$294~000. 

9. WIFE'S CO:rvt::MUNITY DEBTS: [Glenda] assumes, shall timely pay and 

shall hold [Arthur] harmless for the following debts: .... 

(b) [t]he tax obligation an [sic] any asset or proceeds which she is 

receiving pursuant to this Agreement; 

12. GENERAL PROVISIONS: 

H. Transfer of Property: Each party shall immediately allow the other 

to take possession of the property transferred to that party by this 

Agreement. 

(Appellant App. at 257-261.) 

The $1 million cash payment referred to by Paragraph 6(a) of the Agreement was 

paid to Glenda in installments between January 7, 1987, and March 16, 1987. These 

installments were paid by checks written on the Plan's bank account. Upon receipt of 

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these payments, Glenda did not redeposit the funds into the Plan, nor did she roll the 

funds over into any other qualified plan within the sixty day grace period allowed by 26 

U.S.C. § 402(a)(5). 1 Neither Arthur nor Glenda reported the payment as income on their 

separately filed 1987 federal income tax returns. 

Ordinarily, any funds distributed from a qualifying pension plan are taxable to the 

plan participant or beneficiary who, under the plan, is entitled to receive the distribution. 

Darby v. Commissioner, 97 T.C. 51, 58 (1991). Yet under section 402(a)(9) of the Code,2 

the "spouse or former spouse 11 of the plan participant who receives 11any distribution or 

payment made ... under a qualified domestic relations order (as defined in section 

414(p))" shall be considered an "alternate payee" and taxed on such distribution or 

payments as the distributee. I.R.C. § 402(a)(9). Accordingly, the tax liability for the $1 

million distribution from Arthur's Plan will be allocated either to Arthur or Glenda 

depending upon whether the Agreement as incorporated into the Dissolution Decree 

satisfies the statutory defmition of a QDRO. A domestic relations order qualifies as a 

Although a qualified pension plan is exempt from taxation under 26 U.S.C. § 

501(a), any amounts actually distributed from such a plan must be included in the 

distributee's gross income. 26 U.S.C. § 402(a)(1). In order to avoid the tax bite of a plan 

distribution, the distributee may 11roll over" the amount of the distribution into another 

eligible plan within sixty days. 26 U.S.C. § 402(a)(5)(A)-(C). Failure to make a timely 

rollover of distributed funds constitutes a taxable event. 

2 All statutory references are to the Internal Revenue Code of 1986, as amended and 

in effect during the year at issue in this case (the ,.Code" or "I.R.C."), 26 U.S.C. § 1, ~ 

seq., unless otherwise indicated. 

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QDRO under the Code only if it: ( 1) creates, recognizes or assigns to an alternate payee 

the right to receive all or a portion of the benefits payable under a plan; (2) clearly 

specifies certain information about the plan; and (3) does not alter in a prohibited manner 

the amount or form of the benefits payable under the plan. I.R.C. § 414(p )( 1 )-(3). 

Concerned that he might be tar'Xed on the $1 million distribution, Arthur filed a 

Motion for Entry of Qualified Domestic Relations Order !1!!D.£ PIQ 1Y.n£. with the divorce 

court in March 1989. In this motion, Arthur argued that because the Agreement was 

intended to be a QDRO, Glenda was liable for the tax on the distribution. Arthur 

therefore asked the court to enter a QDRO nunc 12IQ tunc to the date of the divorce. In the 

alternative, Arthur argued that Glenda was liable for the tax under Paragraph 9 of the 

Agreement, which provides that Glenda 11 assumes, shall timely pay and shall hold 

[Arthur] hannless for ... [t]he tax obligation ... [on] any asset or proceeds which she is 

receiving pursuant to this Agreement." 

In an order filed August 2, 1989, the divorce court denied Arthur's motion on all 

grounds. First, the court found that nothing in the Agreement specified that a QDRO was 

intended by the parties, or that Glenda was intended to be an alternate distributee of the 

Plan. Second, because it had not retained any jurisdiction over the Agreement (other than 

to enforce its literal terms and to modify child custody issues), the court held that it had 

no jurisdiction to enter a QDRO nunc nm tunc to the date of the original divorce decree. 

Finally, the court refrained from ruling on Arthur's request to enforce Paragraph 9 of the 

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Agreement so as to require Glenda to pay tax on the $1 million distribution on the ground 

that the Commissioner of Internal Revenue ("Commissioner") had not yet assessed a 

deficiency in either Arthur or Glenda's 1987 income tax and thus the issue of enforcing 

the Agreement was not ripe. 

Subsequent to the divorce court proceeding, the Commissioner issued notices of 

deficiency to both Arthur and Glenda. The notices required Arthur and Glenda each to 

include the distribution in their gross income for 1987. After receiving the notices, 

Arthur and Glenda both filed petitions in the United States Tax Court challenging the 

assessed deficiencies. In an order dated March 23, 1993, the Tax Court consolidated the 

two cases for decision. The parties' principal dispute in the Tax Court proceeding was 

whether the Agreement incorporated into the Hawkins' marital dissolution decree was a 

QDRO. In addition~ Glenda and the Commissioner argued that Arthur was collaterally 

estopped from relitigating the QDRO issue by virtue of the divorce court's August 2, 1989 

order. On cross-motions for summary judgment, the Tax Court held that because the 

QDRO question was not definitively decided by the divorce court's August 2, 1989 order, 

Arthur was not precluded from relitigating it. Hawkins, 102 T.C. at 68-70. However, the 

Tax Court ultimately concluded that the Agreement was not a QDRO and granted 

Glenda's motion for summary judgment against the Commissioner. Id. at 70-77. 

Correspondingly, the court granted the Commissioner's motion for summary judgment 

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against Arthur and ordered Arthur to include the $1 million in his gross income for 1987. 

On June 9, 1994, Arthur filed a timely notice of appeal from the Tax Court's order. 

As a protective measure, the Commissioner also appealed the grant of summary judgment 

in favor of Glenda. The Commissioner takes no position on the merits of these 

consolidated appeals, contending simply that either Arthur or Glenda is taxable on the 

distribution. Thus, the Commissioner argues, if we reverse the grant of summary 

judgment in Arthur's case, we should grant summary judgment in favor of the 

Commissioner in Glenda's case.3 

DISCUSSION 

We review decisions ofthe United States Tax Court "in the same manner and to 

the same extent as decisions of the district courts in civil actions tried without a jury." 

I.R.C. § 7482(a). Accordingly, we review purely factual issues for clear error, and purely 

legal questions under the de DQYQ standard. National Collegiate Athletic Ass'n v. 

Commissioner, 914 F.2d 1417, 1420 (lOth Cir. 1990). We also review de novo the use of 

3 The Commissioner justifies her apparent "disinterest" in these cases by pointing 

out, correctly, that the primary administrative and interpretive jurisdiction over the 

QDRO definition resides with the Department of Labor rather than the Department of the 

Treasury, see I.R.C. §§ 40l(n), 414(p)(l1) (1988) (currently codified at I.R.C. § 

4 14(p)(I2)), and further, that the Secretary of Labor has not yet provided administrative 

guidance with respect to the QDRO definition. 

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collateral estoppel to bar relitigation of an issue. Meredith v. Beech Aircraft Corp., 18 

F.3d 890, 894 (lOth Cir. 1994). 

I. 

Glenda first contends that Arthur is precluded from arguing that the Agreement is 

a QDRO because the New Mexico divorce court considered and rejected this same 

argument in 1989. Under the Full Faith and Credit statute, federal courts are required to 

give a state court judgment the same preclusive effect as the state rendering the judgment 

would have given. 28 U.S.C. § 1738; Franklin v. Thompson, 981 F .2d 1168, 1170 (lOth 

Cir. 1992). We must therefore determine whether the issue preclusion principles 

followed by New Mexico courts would bar Arthur from relitigating the QDRO issue. 

New Mexico courts traditionally require the presence of four elements to 

successfully invoke collateral estoppel: (1) the parties are the same or are privies of the 

original parties; (2) the cause of action is different; (3) the issue or fact was actually 

litigated; and (4) the issue was necessarily determined. Amoco Prod. Co. v. Heimann, 

904 F.2d 1405, 1417-18 (lOth Cir.) (citing International Paper Co. v. Farrar, 700 P.2d 

642, 644-45 (N.M. 1985)), cert. denied, 498 U.S. 942 (1990). Here, the divorce court 

judgment does not preclude litigation of the QDRO issue in this case because the precise 

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statutory question whether the Agreement was a QDRO was neither actually litigated nor 

necessarily decided in the divorce court proceeding. The divorce court decided only 

whether the Hawkins' Agreement was intended to be a QDRO; it did not determine 

whether the Agreement itself satisfied the statutory definition of a QDRO. 

The factual findings made by the divorce court in its August 2, 1989 order make 

clear that the court considered only whether Arthur and Glenda intended the Agreement 

to be a QDRO and, if not, whether the court possessed jurisdiction under its previous 

decree to enter a QDRO after the fact. Nowhere in its order did the divorce court discuss 

the specific statutory criteria for the creation of a QDRO. The court simply concluded 

that the parties did not contemplate the creation of a QDRO, and that it lacked jurisdiction 

to modify the original Dissolution Decree which had incorporated the parties' Agreement. 

We agree with the Tax Court below that when a "statute allows parties to a marital 

settlement agreement to allocate the tax burdens between them by the use of particular 

language, the intentions of the parties are not controlling." Hawkins, 102 T.C. at 70 

(citing Commissioner v. Lester, 366 U.S. 299,304-05 (1961)). Because the divorce court 

order did not address the legal effect of the incorporated Agreement under I.R.C. § 

414(p)(l)-(3), it cannot operate to preclude Arthur from raising the QDRO issue in this 

proceeding. 

IL 

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Before we turn to the central question whether the Hawkins' Agreement is a 

QDRO, a brief overview of the applicable Code sections is necessary. We begin our 

statutory odyssey with sections 401 and 402 of the Code, which govern the taxation of 

distributions from an employees' pension trust. Generally, if an employer makes a 

contribution for the benefit of an employee to a qualified pension trust which meets the 

requirements of section 40l(a) and which is exempt from tax under section 501(a),4 

the employee is not required to include this contribution in his or her gross income for 

that taxable year. 26 C.P.R.§ 1.402(a)-l(a) (1995). However, any amount actually 

distributed from a qualifying pension trust to a "distributee" must be included in the 

distributee's gross income for that year. I.R.C. § 402( a)( I). Although neither the Code 

nor the applicable Treasury Regulations define the term "distributee" as used in section 

402(a)(l), the general rule is that the "distributee" offimds from a qualifying pension plan 

is the participant or beneficiary who is entitled to receive the distribution under the terms 

of the plan. See Darby v. Commissioner, 97 T.C. 51,58 (1991). Section 402(a)(9) states 

an exception to this general rule, providing that an 11 alternate payee who is the spouse or 

former spouse of the participant shall be treated as the distributee of any distribution or 

payment made to the alternate payee under a qualified domestic relations order." I.R.C. § 

4 Section 40l(a) ofthe Code sets forth the necessary criteria to create a 11 qualified 

trust," and section 50 I makes such qualified trusts exempt from taxation. The 

Commissioner determined, and the parties do not dispute, that the Plan at issue in this 

case is a qualified pension trust under section 40l(a) which is tax exempt under section 

50l(a). 

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402(a){9); Hawkins v. Commissioner, 102 T.C. 61, 66 {1994). As a result, the legal 

characterization of whether a particular document is a QDRO will determine whether a 

plan participant(~, Arthur) or the participant's "spouse or former spouse" who is 

awarded benefits under a qualified plan(~ Glenda) will be the "distributee" and thus 

incur the tax liability of a pension plan distribution. 

The QDRO has an additional function besides tax allocation; indeed, the 

legislative history demonstrates that the primary purpose of the QDRO exception was to 

enable plan participants to assign or alienate their plan interests in connection with a 

domestic relations order. Prior to 1974, a participant's interest in a tax-exempt pension 

plan was freely assignable under the Code. However, the enactment of the Employee 

Retirement Income Security Act of 1974 ("ERISA") changed existing law by providing 

that benefits obtained "under [a qualifying pension] plan may not be assigned or 

alienated." Pub. L. No. 93-406, § 206(d)(l), 88 Stat. 864 (1974) (codified at I.R.C. § 

401(a){13)(A) and 29 U.S.C. § 1056(d)(l)). This so-called "spendthrift" provision of 

ERISA was intended to "protect an employee from his own financial improvidence in 

dealings with third parties," American TeL & Tel. Co. v. Merry, 592 F.2d 118, 124 (2d 

Cir. 1979), and to ensure "that the employee's accrued benefits are actually available for 

retirement purposes," H.R. Rep. No. 807, 93d Cong., 2d Sess. (1974), reprinted in 1974 

U.S.C.C.A.N. 4670, 4734. ERJSA also added a section giving certain parts of the statute 

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(including the spendthrift provision) preemptive effect over contrary state law. See 29 

U.S.C. § 1144(a). 

Following the enactment ofERISA) courts were divided on the question whether 

the spendthrift provision preempted state domestic relations laws permitting the 

attachment of plan benefits for the purpose of meeting domestic support obligations. See 

S. Rep. No. 575, 98th Cong., 2d Sess. 20 (1984)) r~rinted in 1984 U.S.C.C.A.N. 2547, 

2564 (recognizing conflicting authority). Compare Francis v. United Tech. ColJ)., 458 F. 

Supp. 84, 85-86 (N.D. Cal. 1978) (ERISA spendthrift provision preempts the application 

of state community property law permitting division of plan benefits for domestic support 

purposes) with American Tel. & Tel. Co. v. Men:y, 592 F.2d 118 (2d Cir. 1979) (holding 

that Congress did not intend ERlSA to preempt state laws allowing the attachment of plan 

benefits in order to satisfy family support obligations). This judicial rift was addressed by 

Congress in the Retirement Equity Act of 1984 (''REA"), Pub. L. No. 98-397, 98 Stat. 

1426. The REA created a limited exception to the spendthrift provision of ERISA that 

permits qualified pension plan benefits to be divided pursuant to ~~qualified domestic 

relations orders." See LR.C. § 401(a)(13){B); 29 U.S.C. § 1056{d)(3).5 Thus, a marital 

dissolution decree that does not fall within the limited QDRO exception is preempted by 

5 The QDRO exception recognized by the REA is codified in both the labor code 

and the tax code. The Commissioner concedes that because the two parallel provisions 

were created by the same legislative act and contain precisely the same language, they are 

interpreted identically. 

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ERISA, and any assignment of pension interests under such an order is unenforceable, 

even if intended as part of a family support order. See Metropolitan Life Ins. Co. v. 

Wheaton, 42 F .3d 1080, 1083 (7th Cir. 1994) (involving a welfare plan rather than a 

pension plan). 

As the foregoing discussion demonstrates) the technical definition of a QDRO 

assumes great significance not only with respect to marital property and employee 

benefits taxation, but also with respect to domestic support obligations. See Mackey v. 

Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 838-39 (1988) (noting that the 

"primary focus" of the QDRO exception was to allow alienation of"pension plan benefits 

when spouses sought enforcement of domestic support orders"). This definition is set 

forth in section 414(p) of the Code) which provides in relevant part: 

(p) Qualified domestic relations order defined.--For purposes ofthis 

subsection and section 40l(a)(13)--

(1) In general.--

(A) Qualified domestic relations order.--The term "qualified 

domestic relations order" means a domestic relations order--

(i) which creates or recognizes the existence of an 

alternate payee's right to~ or assigns to an alternate payee the 

right to, receive all or a portion of the benefits payable with 

respect to a participant under a plan, and 

(ii) with respect to which the requirements of paragraphs 

(2) and (3) are met. 

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(2) Order must clearly specify certain facts.--A domestic relations 

order meets the requirements of this paragraph only if such order clearly 

specifies--

(A) the name and the last known mailing address (if any) of the 

participant and the name and mailing address of each alternate payee 

covered by the order, 

(B) the amount or percentage of the participant's benefits to be 

paid by the plan to each such alternate payee, or the manner in which 

such amount or percentage is to be determined, 

(C) the number of payments or period to which such order 

applies, and 

(D) each plan to which such order applies. 

(3) Order may not alter amount, form, etc., of benefits.-A domestic 

relations order meets the requirements of this paragraph only if such order 

[does not alter in a prohibited manner the amount or form of benefits]. 

(8) Alternate payee defined.--The tenn "alternate payee" means any 

spouse, former spouse, child or other dependent of a participant who is 

recognized by a domestic relations order as having a right to receive all, or 

a portion of, the benefits payable under a plan with respect to such 

participant. 

I.R.C. § 414(pXl)-(3), (8). 

Glenda argues that the Agreement incorporated into the Hawkins' Dissolution 

Decree is not a QDRO because: (1) it does not create, recognize or assign to her the right 

to receive benefits under the Plan as required by section 414(pXl)(A)(i); and (2) it does 

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not "clearly specify certain facts" as required by section 414(p)(2). We address each of 

these contentions in turn. 

A. 

Paragraph 6(a) of the Agreement states that Glenda "shall receive as her separate 

property ... [c]ash of One Million Dollars ($1,000,000.00) from Husband's share11 of the 

Plan. The Tax Court concluded that this language did not satisfy section 414(p)(l)(A)(i)'s 

requirement that a domestic relations order "createD or recognize(] the existence of an 

alternate payee's right to, or assign[] to an alternate payee the right to, receive all or a 

portion of the benefits payable with respect to a participant under a plan." The Tax Court 

reasoned as follows: 

We do not believe that identifying the pension plan as the source of the $1 million 

cash payable to Mrs. Hawkins necessarily created, recognized, or assigned rights 

to her, as an alternate payee, in the benefits payable under the pension plan. The 

settlement agreement did not refer to her as an alternate payee, and any indication 

therein that she was to be taxable on the distribution, as an alternate payee would 

be, was ambiguous at best. 

Hawkins, 102 T.C. at 74. We believe the Tax Court's reading of section 414(p)(l)(A)(i) 

is unduly narrow for two reasons. First, it erroneously assumes that in order to create a 

QDRO, the parties to an agreement must express their intent to reallocate the tax burden 

of a pension distribution. Second, the Tax Court's interpretation reads into section 

414(p)(l)(A)(i) a requirement that the parties incorporate the exact statutory terminology 

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when drafting a domestic relations order. Because section 414(p)(l)(A)(i) requires 

neither of these things, we believe the Tax Court's interpretation runs counter to the plain 

meaning of the statute. 

Nothing in the statute requires the parties to a marital settlement agreement to 

indicate unambiguously their desire to shift the tax consequences of a particular 

distribution. Allocation of tax liability between the parties is a consequence of having a 

QDRO; yet it is not a prerequisite to the creation of a QDRO that the parties intend this 

allocation. Whether a domestic relations order qualifies as a QDRO depends on the 

language of the order itself; the subjective intentions of the parties are not controlling . 

.cf.. Commissioner v. Lester, 366 U.S. 299, 304-05 (1961). 

We also reject the Tax Court's interpretation that section 414(p )( 1 )(A)(i) requires 

the parties to a domestic relations order to employ the term "alternate payee" in order to 

create a QDR0.6 Nothing in the plain language of section 414(p)(l)(A)(i) exhorts 

domestic relations lawyers literally to mimic the statutory language when drafting these 

agreements. Section 414(p)(1)(A)(i) simply requires the parties to execute a document 

which either "creates," "recognizes," or "assigns" rights under a qualifying plan to an 

6 The Tax Court indicated that the Agreement would have constituted a QDRO had 

it "expressly stated that it 'creates and recognizes the alternate payee's right to One 

Million Dollars of Arthur C. Hawkins' interest in the Pension Plan."' Hawkins, 102 T.C. 

at 76-77 (emphasis added). 

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alternate payee. We believe the language contained in the Hawkins' Agreement 

adequately accomplishes this purpose. 

By expressly stating that Glenda "shall receive" $1 million "from" the Plan, 

Paragraph 6(a) of the Agreement plainly "creates or recognizes" a contractual right in 

Glenda as an alternate payee to receive "a portion of the benefits payable" under the Plan ... 

I.R.C. § 414(p)(l)(A)(i). Additionally, Glenda does in fact come within the statutory 

definition of an "alternate payee," even though she was not specifically designated as 

such in the Agreement. An alternate payee is "any spouse [or] former spouse ... of a 

participant who is recognized by a domestic relations order as having a right to receive 

all, or a portion of, the benefits payable under a plan with respect to such participant." 

LR.C. § 414(p )(8). As Arthur's former spouse, Glenda is an "alternate payee" because the 

Agreement gives her the right to receive "all, or a portion of, 11 Arthur's Plan benefits.7 

This construction of the Hawkins' Agreement is supported by our decision in 

Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114 (lOth Cir.), cert. denied, 502 U.S. 

7 Although we find no ambiguity in the language contained in Paragraph 6(a), 

Glenda contends that we should interpret it to mean that Arthur is personally liable to her 

for $1 million, and that Arthur was to withdraw the $1 million from the Plan himself 

. before paying it over to her. Under Glenda's interpretation, the Plan was merely the 

"source" of the funds to satisfY this generic $1 million obligation. Glenda's interpretation 

is not, however, a reasonable one. Nowhere does the Agreement state or even imply that 

Arthur must first withdraw the funds from the Plan himself; rather, Paragraph 6(a) clearly 

states that Glenda "shall receive [the $1 million] from Husband's share" ofthe Plan. We 

emphasize here that an "ambiguity in a contract cannot be created by the mere assertions 

of a party to it." Castleglen. Inc. v. RIC, 984 F.2d 1571, 1581 (lOth Cir. 1993). 

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1020 (1991). One of the principal issues in Carland was whether a state divorce decree 

that required the husband to name his wife as the primary beneficiary of his insurance 

policy was preempted by ERISA. The wife argued that the decree in question was a 

QDRO and thus fell outside ofERISA's preemptive sweep. llL. at 1119-20. The relevant 

language in the Carland divorce decree read as follows: ,.[Husband] is ordered to pay the 

premiums on, and to make irrevocable designation of [Wife] as the sole primary 

beneficiary under and of, the policies ·or insurance on the life of [Husband]. ... " I d. at 

1116. The decree did not refer to the wife as the "alternate payee," nor did it utilize the 

statutory buzzwords "create," "recognize," or "assign" to provide the wife with benefits 

under the husband's plan. Nevertheless, on these facts, we had little difficulty concluding 

that "the domestic relations order recognizes [the wife's] right to receive policy benefits." 

.uL at 1120 (emphasis added). Accordingly, we believe Carland requires us to reject the 

Tax Court's fonnalistic reading of section 414(p)(l)(A)(i). 

Whereas Carland lends support to our conclusion, Karem v. Commissioner, 100 

T.C. 521 (1993), cited by Glenda, is inapposite. In Karem, a consent judgment was 

entered by a state divorce court in order to partition the community property of Mr. and 

Mrs. Karem. 100 T.C. at 523. The consent judgment provided that Mrs. Karem was ~o 

receive an interest in her ex~husband's pension plan, but it stated the following condition: 

She shall receive that interest pursuant to a Qualified Domestic Relations Order to 

be prepared by Robert Louis Karem. Until the Qualified Domestic Relations 

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Order is completed, Robert Louis Karem shall pay Barbara Wiechman Karem her 

interest in the pension plan immediately when he receives it. 

ld. After being assessed a deficiency in his gross income based on a lump-sum plan 

distribution paid to Mrs. Karem, Mr. Karem filed a petition in the Tax Court arguing that 

the consent judgment was a QDRO. The court rejected this argument, noting that "the 

consent judgment directs that a QDRO be drafted ... ; the consent judgment itself is not a 

QDRO." llL at 525-526 (emphasis added). The court also noted that Mrs. Karem 

received the lump-sum pension benefits more than a year before the consent judgment 

was rendered. ld. at 526. Thus, there was no written order in existence at the time of the 

distribution that would satisfy the requirements of section 414(p) ofthe Code. Our facts 

are decidedly different. Unlike the consent judgment in Karem, the Agreement 

incorporated into the Hawkins' Dissolution Decree itself gives Glenda the right to obtain a 

portion of Arthur's pension benefits; it does not condition the receipt of those benefits 

upon the future execution of a QDRO. Moreover, unlike Mrs. Karem, Glenda received 

her $1 million portion of the Plan benefits after the incorporation of the Agreement into 

the Dissolution Decree. Glenda's reliance on Karem is therefore misplaced. 

Finally, we believe the legislative history of the QDRO exception supports our 

reading of section 414(p )( 1 )(A)(i). Prior to the enactment of the Retirement Equity Act, 

some courts had held that state law domestic support orders assigning or attaching 

pension benefits were preempted by ERISA's spendthrift provision. SeeS. Rep. No. 575, 

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98th Cong., 2d Sess. 20 (1984), reprinted in 1984 U.S.C.C.A.N. 2547, 2564 (recognizing 

conflicting decisions). Congress' primary intent in recognizing the QDRO exception was 

to clarify that these domestic support obligations did not fall within the scope of ERISA 

preemption. See Mackey v. Lanier Collection Agency & Serv .. Inc., 486 U.S. 825, 838" 

39 (1988). The Tax Court's narrow reading of section 414(p) has the potential to frustrate 

this important congressional pwpose by making it unreasonably difficult for domestic 

relations orders to qualify as QDROs. Under the Tax Court's approach, spouses or 

children of plan participants would be precluded from receiving intended domestic 

support payments simply because the particular divorce decree failed to track the 

language of the statute even though the criteria of the statute were satisfied in substance. 

See Metropolitan Life Ins. Co. v. Wheaton, 42 F.3d 1080, 1085 (7th Cir. 1994). Given 

the important legislative purpose behind the QDRO exception, we do not believe that 

Congress intended such an undesirable result. 

B. 

The Tax Court's alternate ground for denying QDRO status to the Hawkins' 

Agreement was that it did not 11 clearly specify certain facts 11 as required by section 

414(p)(2). See Hawkins, 102 T.C. at 74-76. To qualify as a QDRO under the statute, an 

order must clearly specify: (1) the name and last known mailing address of the 

participant and alternate payee; (2) the amount or percentage of the participant's benefits 

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to be paid to the alternate payee, or the manner in which the amount or percentage is to be 

determined; (3) the number of payments or period to which the order applies; and ( 4) 

each plan to which the order applies. I.R.C. § 414(p)(2)(A)-(D). 

The purpose ofthe specificity requirement of section 414(p)(2) is to ''reduce the 

expense of ERISA plans by sparing plan administrators the grief they experience when 

because of uncertainty concerning the identity of the beneficiary they pay the wrong 

person, or arguably the wrong person, and are sued by a rival claimant." Wheaton, 42 

F.3d at 1084 (citing Carland, 935 F.2d at 1120). Consistent with this purpose, the Senate 

Report accompanying the REA legislation suggests that an otherwise qualified order will 

not fail under section 414(p )(2) "merely because the order does not specify the current 

mailing address of the participant and alternate payee if the plan administrator has reason 

to know of that address independently of the order.11 S. Rep. No. 575, 98th Cong., 2d 

Sess. 20 (1984), reprinted in 1984 U.S.C.C.A.N. 2547,2566. 

Seizing on this portion of the legislative history, Arthur argues that the 

requirements of section 414(p)(2) need not be strictly complied with. Rather, he argues, 

the sufficiency of an order should be evaluated on a case-by-case basis in relation to the 

subjective knowledge of the plan administrator. In essence, Arthur's argument is that a 

QDRO need not clearly specify the information required by section 414(p)(2) when the 

plan administrator, by virtue of his independent knowledge, is already cognizant of that 

information. Arthur relies on a recent Seventh Circuit decision, Metropolitan Life Ins. 

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Co. v. ·Wheaton, 42 F.3d 1080, 1085 (7th Cir. 1994), in which a divorce stipulation was 

held to be a QDRO even though it did not formally adhere to the section 414(p)(2) 

specificity requirements.8 In so holding, the court balked at imposing a strict rule of 

particularity under section 414(p )(2), reasoning that such a requirement "would defeat the 

purpose of the provision creating an exception to inalienability for qualified domestic 

relations orders ... and for a purely theoretical gain in certainty.1

' Id. at 1085. 

While we are mindful of the Seventh Circuifs concerns, we do not agree that the 

QDRO specificity requirements should be construed this liberally. First, relaxing the 

requirements of section 414(p )(2)--or, as Wheaton seems to suggest, eliminating them 

altogether in some cases--does violence to the plain meaning of the statute. Nowhere in 

section 414(p) has Congress implied that its factual requirements are optional; indeed, the 

language rather plainly states that a QDRO 11must clearly specify certain facts." I.R.C. § 

414(p)(2) (emphasis added). To accept anything less than what section 414(p)(2) 

expressly requires would contravene the Supreme Court1

s frequent admonition that courts 

must not read language out of a statute. See. e.g., U.S. Dep't of the Treasury v. Fabe, 113 

S. Ct. 2202, 2209-10 (1993); Morales v. Trans World Airlines. Inc., 504 U.S. 374, 385-86 

(1992). 

8 The Wheaton court candidly acknowledged the shortcomings of the divorce 

stipulation: "(The stipulation] does not give the boysr address, name the plans to which it 

applies, or specify the percentage division between the designated beneficiaries. . . . All 

these things must be ,clearly specifiiedJ for a domestic relations order ... to qualify for 

the statutory exception.'1 42 F.3d at 1084 (second alteration in original). 

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Second, we believe that relaxing the specificity requirements of section 414(p )(2) 

would involve the courts in precisely the sort of subjective inquiry the statute was 

designed to avoid: that is, if the specificity requirements are to be evaluated only in light 

of a plan administrator's subjective knowledge, even the most facially inadequate order 

could theoretically qualify as a QDRO, so long as the plan administrator was aware of the 

parties' "true, intentions. ~Hawkins, 102 T.C. at 75 (,Carrying [this] standard to its 

logical extreme would suggest that a domestic relations order that makes no mention of 

the facts required to be specified clearly under section 414(p)(2) is nonetheless a QDRO 

because the plan administrator independently knew such facts."). As a consequence, 

disputes over tax allocation will necessarily require inquiry into what the parties intended 

when drafting the divorce agreement. We do not believe that Congress intended~~without 

expressly saying so~~ that the precise requirements of section 414(p )(2) could be 

disregarded in favor of conducting this type of ad hoc subjective inquiry. 

Commissioner v. Lester, 366 U.S. 299 (1961), cited by both Arthur and Glenda, 

supports this view. Lester interpreted section 22(k) of the Code, which at that time 

required the parties to a divorce decree to "fix" by a "written instrument" the exact portion 

of support payments allocable to child support. These 11 fixed" amounts were then 

excludable from the receiving spouse's gross income. ld. at 300 n.l. In rejecting the 

Commissioner's argument that the statutory requirement for specificity could be satisfied 

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by ascertaining the subjective intent of the parties, the Court made the following 

observation: 

[I]t was the intention of Congress, in enacting § 22(k) ... to eliminate the 

uncertain and inconsistent tax consequences resulting from the many variations in 

state law .... The statutory requirement is strict and carefully worded. It does not 

say that "a sufficiently clear purpose" on the part of the parties is sufficient to shift 

the tax. It says that the "written instrument" must "fix" that "portion of the 

payment" which is to go to the support of the children. . . . All of these 

considerations lead to the conclusion that if there is to be certainty in the tax 

consequences of such agreements the allocation to child support made therein must 

be "specifically designated" and not left to determination by inference or 

conjecture. 

Lester, 366 U.S. at 301, 303, 306. We believe this analysis is equally applicable to the 

present case. Congress1 mandate in section 414(p)(2) that a QDRO "must clearly specify 

certain facts" is no less specific than the provision in Lester requiring the parties to "fix" 

by "written instrument" the amounts allocable to child support. Accordingly, we 

conclude that section 414(p )(2) should be accorded its plain meaning, and not interpreted 

so as to allow the parties to omit the requested information whenever it is convenient or 

even perhaps logical to do so. 

We must now determine whether the Agreement contains the 11 clearly specified" 

facts contemplated by section 414(p )(2). The Agreement states that Glenda is to receive 

"[c]ash of One Million Dollars ... from Husband1s share of the Arthur C. Hawkins, 

D.D.S. Pension Plan," and that Arthur "shall immediately allow [Glenda] to take 

possession of the property transferred [to her] by this Agreement." This language is 

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accompanying the REA legislation, seeS. Rep. No. 575, 98th Cong., 2d Sess. 20 (1984), 

reprinted in 1984 U.S.C.C.A.N. 2547, 2566, and in light of Glenda's concession, held that 

the name and address requirement was satisfied. See Hawkins, 102 T.C. at 76. Glenda 

does not challenge that holding on appeal and thus we do not address the correctness of 

the Tax Court's ruling in this regard. Accordingly, we conclude that the Agreement 

complies with all ofthe section 414(p)(2) specificity requirements. 

III. 

Because we conclude the Agreement as incorporated into the Dissolution Decree 

both: (1) creates and/or recognizes Glenda's right as an alternate payee to a portion of 

Arthur's benefits under the Plan; and (2) clearly specifies the necessary facts set forth at 

section 414(p)(2), we hold that it is a QDRO. Accordingly, we REVERSE the judgment 

of the United States Tax Court. In particular, we REVERSE the grant of summary 

judgment in favor of the Commissioner and order that judgment be entered in favor of 

Arthur C. Hawkins in case No. 94-9011. Consequently, we also REVERSE the grant of 

summary judgment in favor of Glenda R. Hawkins and order that judgment be entered in 

favor of the Commissioner in case No. 94-9009. These cases are REMANDED for entry 

of judgment as indicated. 

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