Beware of the Trap-marital Agreements and Erisa Benefits
| Publication year | 1994 |
| Pages | 577 |
1994, March, Pg. 577. Beware of the Trap-Marital Agreements and ERISA Benefits
Marital agreements, also referred to as antenuptial, premarital, prenuptial and postmarital agreements, are becoming more common as individuals experience multiple marriages. Marital agreements are frequently used to protect assets that are accumulated prior to a marriage, including often-sizable retirement plan benefits. Recent federal cases suggest that a waiver of spousal rights to qualified pension plan survivor benefits in a premarital agreement may never be enforceable.
This article analyzes these recent cases and relevant federal legislation, for discussion of the inherent problems in preparing or negotiating waivers of pension and retirement benefits in marital agreements. Drafting suggestions and malpractice considerations also are included.
Since 1986, marital agreements have been governed by the Colorado Marital Agreement Act.(fn1) Such agreements have traditionally been upheld by the Colorado courts. The enforceability of marital agreements has been considered a question of state law.
The Employee Retirement Income Security Act of 1974 ("ERISA")(fn2) is the controlling statute with respect to the regulation of "qualified" retirement plans. ERISA established certain requirements for joint and survivor annuity coverage for married individuals in a pension plan. Provisions of the Internal Revenue Code parallel ERISA language for the qualification requirements of a plan to obtain tax-exempt status.(fn3)
The Retirement Equity Act of 1984 ("REA")(fn4) amended the rules for survivor benefits under ERISA for the purpose of enlarging the rights of spouses of plan participants, including the creation of a limited exception to the anti-alienation provisions for a qualified domestic relations order. REA ensures that a participant's spouse receives survivor benefits even if the participant dies before reaching retirement age or while receiving benefits.
ERISA specifies four major requirements to effect a valid waiver of spousal benefits. An election to waive the benefits of a spouse is not valid unless: (1) the spouse of the participant consents in writing to such election; (2) the election designates a beneficiary that may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the participant without further consent by the spouse); (3) the spouse's consent acknowledges the effect of such election; and (4) the consent is witnessed by a plan representative or notary.(fn5) The election to waive a spousal survivor annuity form of benefit by the participant must be made within the applicable election period required by the plan.(fn6)
ERISA requirements pose substantial compliance problems for lawyers and their clients who desire effectively to waive pension rights when entering into a marital agreement. There are other problems to overcome as well. Spousal waivers of pension benefits, whether they are premarital or postmarital, are automatically invalid if they were signed before August 23, 1984, the date of the enactment of the REA.(fn7)
A premarital waiver is also ineffective if it was signed before the retirement plan came into existence. If the marital agreement was entered into prior to age thirty-five of the waiving party, a new waiver must be signed after the waiving party reaches age thirty-five.(fn8) Most importantly, since a spouse always has an interest in pension benefits unless he or she signs a waiver, when an agreement is executed prior to the wedding, the waiving party is not yet a spouse and most likely can never have been deemed to have appropriately waived his or her rights.(fn9)
Recent federal cases illustrate how courts are interpreting the ERISA waiver requirements. These recent decisions are uniform in holding that premarital agreements that do not...
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