Welch v. Welch ( 2023 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA22-448
Filed 02 May 2023
Guilford County, No. 07 CVD 3230
JEFFREY LOREN WELCH, Plaintiff,
v.
DEBORAH BEAM WELCH, Defendant.
Appeal by Defendant from an order entered 28 January 2022 by Judge
Michelle Fletcher in Guilford County District Court. Heard in the Court of Appeals
29 November 2022.
No brief for Plaintiff-Appellee.
Woodruff Family Law Group, by Carolyn J. Woodruff, Jessica Snowberger
Bullock and Y. Michael Yin, for Defendant-Appellant.
WOOD, Judge.
This is a second appeal in the same matter.1 Where before this Court reviewed
a trial court’s denial of a contempt and Rule 70 motion, we now consider whether a
motion for entry of a domestic relations order is a proper mechanism for distribution
of an individual retirement account under the circumstances or constitutes an action
subject to the statute of limitations.
1 For the previous case, see Welch v. Welch (Welch I), 278 N.C. App. 375, 859 S.E.2d 646(2021) (unpublished).
WELCH V. WELCH
Opinion of the Court
I. Background
Mr. and Ms. Welch were married on 19 June 1981. On 30 January 2007, an
action for divorce, child custody, and equitable distribution was commenced, and the
parties were divorced on 2 July 2007. The parties entered into a Consent Judgment
and Order on 30 October 2008, which specified the distribution of the marital
property. This distribution included Mr. Welch’s Individual Retirement Account
(“IRA”) and provided as follows:
As soon as practicable following the entry of this Consent
Judgement and Order, Plaintiff shall transfer to Defendant
one-half (50%) of his Charles Schwab Contributory IRA,
Account Number . . . , into an individual retirement account
in Defendant’s sole name. Upon the division, the tax basis
of such individual retirement account, if any, shall also be
equally divided between the Parties on a pro rata basis as
of the date of transfer from such IRA. This transfer is an
incident of the parties’ divorce and shall be completed
pursuant to I.R.C. § 408(d)(6) via a trustee to trustee
transfer. Defendant and Plaintiff shall execute all
documents necessary to effectuate such transfer. Plaintiff
shall be allowed to withdraw up to his one-half portion of
his IRA at any time (but any such withdrawals shall not
affect Defendant’s one-half amount to be transferred to
her).
The parties did not act upon the trial court’s order to distribute the IRA until
Ms. Welch filed a motion to find Mr. Welch in contempt on 28 October 2019, nearly
eleven years after the Consent Judgment and Order. The reason for this delayed
action may have been that Ms. Welch believed that she had access to the account for
those eleven years by virtue of her vested interest in the account. The trial court
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denied the contempt motion on 24 February 2020. It held that the statute of
limitations, as enumerated in Section 1-47(1) of our General Statutes, barred her
motion.
Ms. Welch subsequently filed a motion on 30 January 2020, requesting the
trial court to “exercise its ministerial and administrative duty” to transfer title of the
IRA to her pursuant to Rule 70 of the North Carolina Rules of Civil Procedure. The
trial court denied this motion, too, on 13 April 2020. It held that such action “is
beyond the Court performing a mere ministerial act where no facts are in dispute.”
Ms. Welch appealed these denials in Welch v. Welch (Welch I), 278 N.C. App.
375, 859 S.E.2d 646 (2021) (unpublished). In Welch I, this Court concluded that the
contempt and Rule 70 motions were properly denied. This Court did not address
whether the trial court could enter a domestic relations order to effectuate the
transfer of the IRA because Ms. Welch had not presented that argument to the trial
court. Citing State v. Benson, 323 N.C. 318, 322, 372 S.E.2d 517, 519 (1988), this
Court repeated the maxim “where a theory argued on appeal is not raised before the
trial court, the argument is deemed waived on appeal.” Welch I, 278 N.C. App. 375,
859 S.E.2d 646, ¶ 7.
Thereafter, Ms. Welch raised such a theory before the trial court and moved
the trial court on 8 September 2021 to enter a domestic relations order to effectuate
the transfer of the IRA. The “Motion” asked the court to “enter an IRA Domestic
Relations Order (DRO) [p]ursuant to IRC § 408(d)(6) transferring the current balance
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of Plaintiff’s Schwab IRA account.” It also contained six alternative motions. They
are as follows:
Motion One: The court has the inherent authority
based upon the equitable distribution Judgment to enter
orders to effectuate the Judgment so that the court file can
be closed.
Motion Two: The Defendant moves for the return of
her separate property vested in her pursuant to NCGS 50-
20 et seq and requests that the court award her attorney
fees from the Plaintiff for the failure to release her vested
separate property to her. The IRA at Schwab is her vested
separate property now and forever more.
Motion Three: The Defendant moves for an IRA
Order effectuating her vested property rights in the
Schwab IRA.
Motion Four: Pursuant to GS 50-20.1(j), the
Defendant moves for an order effectuating her vested
benefit in the Schwab IRA.
Motion Five: Pursuant to NCGS 50-20 (g), the court
can enter an order under transferring the title to the
Defendant’s vested IRA at Schwab to her.
Motion Six: The Defendant generally moves for the
magical words necessary for her to obtain her vested
interest in the Schwab IRA as a part of all further relief the
court deems necessary under equity or law.
The trial court denied the motion on 28 January 2022, holding as conclusions
of law:
a. The Schwab IRA account has not been proven to
be a “qualified retirement plan” pursuant to ERISA and,
thus, a QDRO or DRO is inapplicable and not the
appropriate mechanism for distribution thereof;
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b. The 2008 Consent Order specifically addressed
the rights and obligations of the parties regarding the
Schwab IRA, and the Order did not include language for
entry of a QDRO or DRO as the mechanism for division and
distribution of the Schwab IRA account;
c. Furthermore, to the extent Defendant’s motion
continues to seek enforcement of the 2008 Consent Order,
the motions are barred by the statute of limitations set
forth in N.C.G.S. § 1-47.
Pursuant to N.C. Gen. Stat. § 7a-27(b)(2) (2022), Ms. Welch now appeals from
the trial court’s dismissal.
II. Standard of Review
“[W]hen the trial court sits without a jury, the standard of review on appeal is
whether there was competent evidence to support the trial court’s findings of fact and
whether its conclusions of law were proper in light of such facts.” Shear v. Stevens
Bldg. Co., 107 N.C. App. 154, 160, 418 S.E.2d 841, 845 (1992). Findings of fact are
conclusive on appeal if there is evidence to support those findings, while conclusions
of law are reviewed de novo. Lee v. Lee, 167 N.C. App. 250, 253, 605 S.E.2d 222, 224
(2004). “Under a de novo standard of review, this Court considers the matter anew
and freely substitutes its own judgment for that of the trial court.” Reese v.
Mecklenburg Cnty., 200 N.C. App. 491, 497, 685 S.E.2d 34, 38 (2009).
III. Discussion
Ms. Welch argues that the trial court erred in denying her motion for entry of
a domestic relations order (“DRO”) when it concluded, as a matter of law, that a DRO
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is “not the appropriate mechanism for distribution” of the IRA because it must be
“proven to be a ‘qualified retirement plan’ pursuant to ERISA” and, further, the
original order “did not include language for entry of a QDRO or DRO” as a means of
distribution. It also held that the motion for entry of a DRO is otherwise a new action
“barred by the statute of limitations.” We agree with Ms. Welch and overrule these
conclusions.
A. Domestic Relations Orders as a Mechanism for Effectuating an
Equitable Distribution Order.
An equitable distribution consent order, “once signed and entered by the trial
judge, [becomes] a ‘court-ordered equitable distribution’ ” for the purposes of
distributing retirement plan benefits under Section 50-20.1 of our General Statutes.
Patterson v. Patterson, 137 N.C. App. 653, 664, 529 S.E.2d 484, 490 (2000). Thus, the
2008 Consent Order, after being signed and entered by the trial court, is now treated
as an equitable distribution award under Section 50-20.1. Ms. Welch’s “interest in
the Schwab IRA vested in October 2008 when the Order was entered.” Welch I, 278
N.C. App. 375, 859 S.E.2d 646, ¶ 5. To “vest” means “to grant, endow, or clothe with a
particular authority, right, or property.” Vested, Webster’s Third New International
Dictionary (1968).
As part of an equitable distribution award, retirement accounts may be
distributed “by means of a qualified domestic relations order, or as defined in section
414(p) of the Internal Revenue Code of 1986, or by domestic relations order or other
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appropriate order.” N.C. Gen. Stat. § 50-20.1(g) (2022) (emphasis added). This
method of distribution “appl[ies] to all vested and nonvested pension, retirement, and
deferred compensation plans, programs, systems, or funds, including . . . individual
retirement accounts within the definitions of Internal Revenue Code sections 408 and
408A.” § 50-20.1(h) (emphasis added). Section 408 of the Internal Revenue Code
defines an “individual retirement account” as “a trust created or organized in the
United States for the exclusive benefit of an individual or his beneficiaries” and
mandates certain investment limitations. 26 U.S.C. § 408(a). It is apparent from the
record that the IRA at issue here falls into this descriptive category and may therefore
be distributed through a DRO as outlined in Section 50-20.1(g) or by “other
appropriate order.” N.C. Gen. Stat. § 50-20.1(g) (2022); see 26 U.S.C. § 408(b)(6)
(citing 26 U.S.C § 121(d)(3)(C)(i)) (providing generally for the tax-free transfer of an
IRA via “written instrument incident to” a divorce decree).
We note that certain employer-sponsored retirement accounts are additionally
subject to the federal Employee Retirement Income Security Act of 1974 (“ERISA”)
and require a special class of DRO, a qualified domestic relations order (“QDRO”), to
distribute benefits to someone other than the account participant. 29 U.S.C. §
1056(d)(3)(A); see N.C. Gen. Stat. § 50-20.1(g) (2022) (providing for the use of QDROs).
However, traditional IRAs, that is, IRAs not funded by an employer, are not “defined
contribution plans” or “defined benefit plans” that would otherwise subject them to
ERISA’s requirements. 26 U.S.C. § 414(i)-(j). The record before us indicates that the
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IRA at issue is a traditional IRA and is therefore not governed by ERISA.
The trial court here conflated DROs and QDROs. It stated, “The Schwab IRA
account has not been proven to be a ‘qualified retirement plan’ pursuant to ERISA
and, thus, a QDRO or DRO is inapplicable and not the appropriate mechanism for
distribution thereof.” As explained above, the trial court need not concern itself with
utilizing a more involved QDRO in this case; a simpler DRO suffices as an appropriate
mechanism to distribute the IRA at issue. The IRA does not need to be a qualified
retirement plan under ERISA for the trial court to issue a DRO.
B. Domestic Relations Orders and the Statute of Limitations
We next address whether a motion for a DRO made more than ten years after
the last action in a case is barred by the statute of limitations in initiating an action
upon a judgment when the original order did not specify a DRO as a means to
distribute the equitable distribution award.
The statute of limitations for initiating an action “[u]pon a judgment or decree
of any court of the United States, or of any state or territory thereof, from the date of
its entry” is ten years. N.C. Gen. Stat. § 1-47 (2022). An action, in this sense, may
be “defined as ‘a formal complaint within the jurisdiction of a court of law.’ ” Bradford
v. Bradford, 279 N.C. App. 109, 114, 864 S.E.2d 783, 788 (2021) (quoting Massey v.
Massey, 121 N.C. App. 263, 267, 465 S.E.2d 313, 315 (1996)).
In Welch I, this Court held that a motion for contempt and a Rule 70 motion
were “action[s] to enforce the judgment” and barred by the statute of limitations after
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ten years had passed since entry of the 2008 Consent Order. Welch I, 278 N.C. App.
375, 859 S.E.2d 646, ¶ 2. This Court did not elaborate upon the rational for this
holding, but it is clear that this Court viewed the motion as a means of enforcing a
prior judgment. Though not an independent action, these motions might be said to
be “in the nature of an action” such that the statute of limitations would bar its entry.
McDonald v. Dickson, 85 N.C. 248, 250 (1881) (quoting Thomas Campbell Foster, A
Treatise on the Writ of Scire Facias 13 (Philadelphia, T. & J.W. Johnson 1851)).
In certain instances, a purported DRO motion seeking to modify a prior order
may likewise constitute “an action upon a judgment” so as to invoke the statute of
limitations, as was the case in Bracey v. Murdock. There, this Court reviewed a
motion for a DRO that did “not simply ‘seek[] to finalize’ the [prior] Consent Order or
to effectuate its equitable distribution provisions” but sought to additionally award
“all passive gains and losses” from the disputed retirement account and to compel
discovery. ___ NC. App. ___, ___, 880 S.E.2d 707, 709 (2022). “ ‘Because motions are
properly treated according to their substance rather than their labels, we treat
[Defendant]’s motion for what it really was, namely, a Rule 59 motion’ to amend the
2005 Consent Order.” Id. (quoting Scott v. Scott, 106 N.C. App. 379, 382, 416 S.E.2d
583, 585 (1992)).
Here, by contrast, Ms. Welch’s motion for a DRO is not a crafty means to amend
the distribution awarded in the 2008 Consent Order. Instead, Ms. Welch sought in
her motion “to effectuate the Judgment” and did not request alterations to the
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original order. Until now, our courts have yet to address whether a motion for a DRO,
as here, constitutes a time-barred “action upon a judgment” where the trial court
previously granted a party vested property rights in a retirement account and the
party seeking the DRO is not seeking anything other than that awarded by the
original order. Looking beyond our borders, we note that other state courts have
answered the question before us.
In Vermont, a husband and wife divorced, and the husband moved in 2017 for
entry of a DRO to effectuate the transfer of retirement funds two years after the eight-
year statute of limitations ran from the original equitable distribution order.
Johnston v. Johnston, 212 A.3d 627, 635 (Vt. 2019). The trial court initially approved
a proposed DRO in 2007 after the parties’ 2004 divorce. The husband filed a motion
to enforce in 2017, claiming that the funds were never transferred to him. Id. at 628.
“The court denied husband’s motion to enforce, finding it barred by the eight-year
statute of limitations for actions on judgments.” Id. The relevant Vermont statute
of limitations states, “Actions on judgments and actions for the renewal or revival of
judgments shall be brought by filing a new and independent action on the judgment
within eight years after the rendition of the judgment, and not after.” Vt. Stat. Ann.
tit. 12, § 506 (2022). Husband appealed the matter to the Vermont Supreme Court.
The Vermont Supreme Court concluded, “We consider husband’s motion as one that
seeks to effectuate the final judgment through entry of an adjunct order and our
decision turns on the unique nature of these procedural devices. We conclude that
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husband’s request is not an ‘action on a judgment.’ ” Johnston, 212 A.3d at 632. That
court wrestled with the notion that a DRO was an attempt to “enforce” a prior
judgment and therefore constituted an “action” as used in Vermont’s similar statute
of limitations.
We simply disagree with the conclusion that entry of a
DRO is an attempt to enforce the underlying final divorce
order or that the filing of a DRO is an attempt to enforce
the underlying final divorce order or that the filing of a
DRO constitutes an execution upon the judgment. As
previously discussed, the right to obtain the retirement
funds awarded in a final divorce order depends upon the
approval of a third-party, the plan administrator. There is
no ‘judgment’ to execute or enforce until that step has been
taken.
Id. at 636. Although the Vermont Supreme Court acknowledged that other state
courts may have held differently, it understood the husband’s plight and the
mechanism necessary to allow him to obtain his vested property. “[A]lthough
husband was awarded the right to a particular amount of retirement funds in the
2004 divorce order, he had no effective ability to enforce that portion of the order
through an ‘action on the judgment.’ ” Id. at 634. It therefore held that “the approval
of [a] proposed QDRO is adjunct to the entry of the judgment of divorce and not an
attempt to ‘enforce’ the judgment.” Id. at 635 (quoting Joughin v. Joughin, 906
N.W.2d 829, 832 (Mich. Ct. App. 2017)). It also cited a Tennessee case, Jordan v.
Jordan, 147 S.W.3d 255 (Tenn. Ct. App. 2004), holding much the same. Id. at 632.
The Michigan Supreme Court faced a similar question and held that a motion
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for a DRO after entry of a distribution award is not barred by that state’s statute of
limitations on actions upon judgments. Dorko v. Dorko, 934 N.W.2d 644, 650 (Mich.
2019). “A party’s request for entry of a proposed QDRO does not involve a distinct
legal ‘claim.’ Only claims can be barred by a statute of limitations.” Id. at 648. The
Michigan Supreme Court reasoned that “[a]sking a court to enter a proposed QDRO
is therefore not an ‘action’ that can be time-barred by a statute of limitations because
the order does not depend on any underlying cause of action. Rather, such a request
merely implements a provision of the divorce judgment.” Id. Though the statute of
limitations “would apply” to attempts to recover retirement benefits attained in
violation of the divorce judgment, that court “differentiate[ed] between defendant’s
procedural entitlement to entry of a proposed QDRO and her substantive right to
receive 50% of plaintiff’s retirement benefits.” Id. at 649-50. Although Dorko
addressed a QDRO, the same analysis is applicable to a DRO as in this case.
We find the rational of these cases persuasive, as to hold otherwise would
deprive spouses of their vested property under an equitable distribution order if the
property were not distributed in a timely manner as happened here. The same
rationale applied in the above Vermont and Michigan cases is applicable here.
Accordingly, we hold that Section 1-47 does not apply to a party’s motion for entry of
a proposed DRO when the court previously has ordered the distribution of retirement
benefits and the motion does not seek an award different from the original equitable
distribution order. We echo Dorko in holding that “[t]here is an important distinction
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between a post[-]judgment order that implements a term of a divorce judgment and
an action to enforce that judgment.” Id. at 649. We note that, in the above decisions,
the original equitable distribution orders specified the entry of DROs as the principal
means of effectuating the distribution of the retirement accounts at issue. Though
the 2008 Consent Order here specified a “trustee to trustee transfer” as the means of
effectuating the distribution, we hold that the principles outlined above operate to
allow the trial court to enter a post-judgment DRO to effectuate the intended result
of the 2008 Consent Order.
IV. Conclusion
In accordance with Section 50-20.1 of our General Statutes, the trial court is
authorized to enter a DRO as a proper mechanism for distributing a traditional IRA.
The statute of limitations does not bar a request for entry of a DRO as a means of
effectuating a prior order, so long as such entry does not affect the substantive rights
of the parties.
REVERSED AND REMANDED.
Judges ZACHARY and GORE concur.
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