Litigation

' Saranac Hale Spencer

Ex-Wife Can Get Benefits, But Could Face Suit from Estate

Adele Kensinger is entitled to the $76,000 in her late ex-husband's retirement plan, but his estate is equally entitled to enforce the waiver she signed giving up her right to collect the benefits once they have been distributed, according to the Third U.S. Circuit Court of Appeals.

In a case of first impression for the Third Circuit, Senior Judge Maryanne Trump Barry wrote on behalf of a three-judge panel that William Kensinger's estate can sue to enforce a waiver to which Adele Kensinger agreed during the couple's divorce, which was made final nine months before William Kensinger died intestate. U.S. Circuit Court Judge Thomas M. Hardiman and U.S. District Court Judge Cynthia M. Rufe of the Eastern District of Pennsylvania, sitting by designation, were unanimous in the decision, which partially reversed a District of New Jersey opinion. Kensinger v. Kensinger, 10-4525 (3d Cir. 2012).

Although the pair had agreed to waive their rights to each other's benefit packages as part of their divorce settlement, William Kensinger neglected to remove Adele Kensinger's name from the 401(k) plan that he began in 2000 through his employer, URL Pharma.

Initially, in November 2009, the estate filed an action in New Jersey Superior Court to keep URL from disbursing funds to Adele Kensinger. A month later, URL removed the case to the federal district court since it implicated the Employee Retirement Income Security Act (ERISA), which arises under federal law. Barry agreed with U.S. District Court Judge Robert B. Kugler in that URL must dispense the proceeds of the plan to Adele Kensinger, but differed on another point by allowing the estate to file suit after the money is transferred.

Leaning heavily on a 2009 U.S. Supreme Court decision that, Barry observed, presented nearly identical facts, she held that once the benefits have been transferred from URL, a suit between the estate and Adele Kensinger would be a simple matter of contract law. She noted as significant in the U.S. Supreme Court opinion in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan , 555 U.S. 285 (2009), that “the court made clear that its holding did not address the question of whether the estate could have sued the ex-wife to recover the benefits after she received them from the plan administrator.”

Allowing that suit would “make sense as a practical matter,” she said in a footnote to the opinion, because “it would permit the two interested parties to litigate against each other directly, without the plan administrator being caught in the middle,” and “it would avoid the anomalous scenario in which a valid waiver is rendered worthless because it cannot be enforced against anyone.”

Judge Barry cited other state and federal opinions that agree with the Third Circuit's holding that an estate can enforce a common law waiver once funds have been given to the named beneficiary. “In each of these cases, the court held that once the benefits were distributed to the designated beneficiary in accordance with the plan documents, ERISA was no longer implicated,” she said.

' Saranac Hale Spencer