Continental Airlines says nine pilots got “paper” divorces from their spouses and then remarried after securing lump-sum distributions from the carrier’s retirement plan. Federal regulators have in the past indicated that plan administrators should disallow sham transactions intended to qualify for tax-favored retirement benefits. Two pilots have now countered with charges that the airline invaded their privacy when it investigated whether their divorces were really what they seemed. [Houston Chronicle and followup]
2 Comments
Sounds like a major tangled web, which will lead to more litigation, brought about by the screwed up nature of our tax laws . One of the problems that I see is that federal courts lack the jurisdiction to declare a state judgment of divorce a sham, and I’m sure that Continental lacks standing to intervene to vacate the state judgments of divorce.
The pilots will no doubt will sue Continental under ERISA, and eventually the litigation costs (including time spent) will consume a good chunk of the tax savings or pension fund preservation. In other words all will lose, but some will lose more than others.
Way back when (1960’s-70’s), before Congress fixed the tax loophole, there was a rather wealthycouple who divorced at the end of December every year, thereby saving the “marriage penalty,” and used their savings to take a vacation where they “reconciled” and remarried on January 1st.
Maybe we need a Defense of Divorce act that defines what a divorce is!