Payment of Child Support with Plan Assets not a State Law Issue

February 11, 2008 ( - The 5th U.S. Circuit Court of Appeals has determined it was an error for a federal district court to decide a court-ordered child support lien could be paid with retirement plan assets on the basis of Texas law without addressing the parties' rights and obligations under the Employee Retirement Income Security Act (ERISA).

The appellate court pointed out ERISA broadly preempts any and all state laws that “relate to” ERISA-governed benefit plans. Also, ERISA provides that pension benefits “may not be assigned or alienated” except pursuant to a “qualified domestic relations order,” the court noted in its opinion.

According to the opinion, the court further said that under federal law, which takes precedence over Texas law in the case, Mabel Parsons may not access benefits in her ex-husband Robert Taliaferro’s ERISA-covered plan unless she complies with ERISA’s requirement for a qualified domestic relations order (QDRO).

Taliaferro and Parsons were divorced in or around 1968. In 2001 Parsons brought an action in the District Court for Smith County, Texas, to collect child support arrearages. The following May Parsons’s attorney supplied Goodyear with a Notice of Child Support Lien filed in the Smith County court. Parsons claimed an interest in Taliaferro’s pension benefits and demanded that his account be frozen.

Goodyear advised Parsons’s attorney that ERISA did not allow payment of child support obligations from a pension benefit check without a QDRO, as defined in the law, and supplied the attorney with guidelines describing the elements of a QDRO.

Meanwhile, Taliaferro and his second wife, Marcia Taliaferro, were obtaining a divorce before a different state court, which issued a Final Divorce Decree and a QDRO awarding Marcia Taliaferro a 70% interest in Taliaferro’s Goodyear pension benefits. Facing competing claims to the same pension benefits, Goodyear advised both parties that it would not make any further distributions until it received a QDRO from a Texas court specifying how the funds were to be distributed.

With both parties unable to resolve the conflict, in April 2005, Marcia Taliaferro filed a Motion for Enforcement of QDRO in the Rusk County court, seeking payment from Goodyear. Goodyear removed the action to the U.S. District Court for the Eastern District of Texas and filed a cross-claim and counterclaim for interpleader, seeking a determination of its obligations under ERISA.

The federal district court held, as a matter of Texas state law, that Taliaferro’s pension benefits were subject to Parsons’s child support lien. It did not address Goodyear’s obligations under ERISA, according to the appellate court opinion.

The 5th Circuit remanded the case back to the district court to determine whether Parsons or Marcia Taliaferro, or both, had presented Goodyear with a QDRO, and if both had, to determine the priority of their competing claims.

The opinion in Taliaferro v. Goodyear Tire & Rubber Company is here .