Given the recent bear market, especially in some sectors, there is obviously a lot of money riding on the interpretation of this case.
Future marital settlement agreements should be carefully reviewed to ensure that they unambiguously allocate risk.
The decision could be interpreted, however, to support the idea that, even if an agreement is ambiguous, or if the property division was established after a court trial, rather than by agreement, a 401(k) plan should generally be divided on the percentage basis contemplated on the date of divorce, and the ultimate QDRO should reflect that percentage.
The courts rejection of Susans judicial efficiency arguments will apply in most cases, regardless of the procedure that led to the property division, and fluctuation in modern pension plans, such as 401(k)s, IRAs, and SEPs, is a certainty in every case.
Fairness, however, is a different consideration. Fluctuation in the market could result in significant disparity in the ultimate value of each partys property, although the intent was an equal division.
Unlike stocks held directly, a 401(k) plan, requiring a QDRO, cant be quickly divided, but takes time. This is arguably a "special circumstance" that could justify valuing the asset at a time after the date of divorce.
Furthermore, if the loss in the plans value can be attributed to poor investment choices made over the spouses objections or without the spouses knowledge, fairness may be a factor in favor of sticking that party with as much of the losses as possible.
Fairness does not require that both parties share the loss if a unilateral decision was made to switch from "widows and orphans funds" to high-tech funds at the height of the Nasdaq.
However fair it may seem after the crash, however, poor investment choices have never been held to constitute the destruction, waste, squandering, or neglect of assets contemplated in Anstutz v. Anstutz, 112 Wis.2d 10, 331 N.W.2d 844 (Ct.App.1983).
On the contrary, to do so would flatly contradict the decision in Hauge v. Hauge, 145 Wis. 2d 600, 427 N.W.2d 154 (Ct.App.1988).
Where one party to the divorce is responsible for delays in the proceedings, however, the decision in Sommerfield v. Sommerfield, 154 Wis.2d 840, 454 N.W.2d 55 (Ct.App.1990), does give support for saddling that party with a disproportionate share of losses in a bear market.
Sommerfield has its roots in the stock market crash of October 1987. On the 29th of that month, the Sommerfields were scheduled for trial in their divorce, but the wife decided on the day of trial that she wanted to try to salvage the marriage, and the trial was adjourned.
Reconciliation failed, however, and by the time the trial commenced in March 1988, the assets had recovered significant value lost in the crash. The court of appeals held it was appropriate to give those gains entirely to the husband, however, as if the trial had occurred in October 1987.
However unfair it may seem to allow punishing a party for an unsuccessful attempt to salvage a marriage, but not allow it for blind faith in the value of stocks with triple-digit P/E ratios, that appears to be the law.
– David Ziemer
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David Ziemer can be reached by email.