In the Matter of Batchelor (2022) & Federal Preemption

Published on
November 11, 2024
Written by
Angel Murphy, Esq
Category
Divorce

As a general matter, we recommend that spouses resolve as many marital disputes as they can in a settlement agreement. Issues resolved in a settlement agreement will not need to be further settled in trial, provided that a judge approves the agreement. We recommend this course for numerous reasons, including cost-efficiency and stress minimization. Marylanders need to be aware of the fact that the terms of a settlement agreement can still be overturned, or “preempted,” when those terms conflict with federal statutes. This is something which may come as a surprise to many people, but it is very much the case. Marylanders are free to include whatever (lawful) terms they wish to include in settlement agreements, but there is always the possibility that one or more of those terms might not succeed.

The case of In the Matter of Batchelor (2022) is a recent case which involved federal preemption of retirement benefits. Let’s examine this case in detail.

Facts of the Case

The couple married in 1999. The wife was a federal worker who opened a particular type of retirement account, a “thrift savings plan,” or TSP. This plan was created under the Federal Employee’s Retirement System Act (FERSA). When the wife initiated the savings plan, the husband was identified as the sole beneficiary.

The spouses divorced in 2010. As part of the settlement agreement, the husband waived his rights to the wife’s retirement account; according to the agreement, he would receive nothing at all from her account. The wife then passed away in 2019, and the government gave away 100% of the wife’s retirement savings account to the ex-husband. The wife’s sister filed an action to recover the funds, and she was successful at trial. The trial court determined that passing the retirement account to the husband was clearly in violation of the terms of the settlement agreement. The husband appealed.

Ruling & Post-Ruling Discussion

On appeal, the appellate division overturned the trial court’s determination and sided with the ex-husband. Although there was no question as to the clarity of the settlement agreement, the terms of the agreement with respect to the retirement savings account were preempted by federal law. Under the applicable federal law on the TSP, the wife needed to submit new designation paperwork to identify a replacement beneficiary for the account. This paperwork is separate from anything to do with the settlement agreement. In other words, to properly designate a new beneficiary, removing the husband in the settlement agreement was not sufficient. In the time between the divorce and the wife’s passing in 2019, no such paperwork was ever filled out and submitted. Consequently, the husband was still considered the beneficiary of the TSP as he was the last properly identified beneficiary to that account.

This is a clear example of the necessity of having an experienced family law attorney when handling retirement accounts in settlement agreements in Maryland. Had the wife consulted with a capable attorney, the proceeds of her account would have ended up not going to the ex-husband.

Contact the Murphy Law Firm for More Information

If you’d like more information on federal preemption, the divorce process in general, or another aspect of family law, contact one of the family law attorneys at the Murphy Law Firm today by calling 240-219-5243.

Angel Murphy

Personable. Passionate. Persistent.

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