Nine Continental pilots have been accused of hatching a divorce scam to take money out of their pension retirement plans. Continental alleges the pilots and their spouses got paper-only divorces while continuing to live together and concealing the change in their marital status from their children and friends. Once a state court approved the divorces, the pilots signed court-issued documents giving their new ex-spouses all rights to a pilots-only pension plan, worth up to $900,000 per individual participant. Then, the spouses presented the paperwork to the Continental pension plan administrator with a request for a lump-sum distribution.
Such pre-retirement payments to former spouses are allowed under the federal law that governs employer-sponsored retirement saving and investing plans that grow tax-free.
But Continental alleges that after getting the money, the couples remarried. It calls the divorces “subterfuges or sham transactions.” Continental filed a lawsuit against the nine pilots and their spouses to recover the money lost in the scam. Continental suggested in the lawsuit that the pilots — seven men and two women — were afraid of losing major chunks of their pensions because of the financial difficulties the airline industry experienced in 2005. Around that time, Delta Air Lines, United Airlines and US Airways filed for bankruptcy protection, reneged on their pension promises and handed over the plans to a federal administrator to make good on a portion of the pension obligations.
The Pension Benefit Guaranty Corp.’s maximum guarantee is paid in periodic annuity payments instead of lump sums and is far less than a typical airline pilot pension. This year, for a 65-year-old person, the maximum is $54,000.
In the GMA story, one of the female pilots accused of the scam insisted that her divorce was real and her reconciliation was real and none of the public’s business. A lawyer for one of the pilots speculated that the pilots would not have been able to hatch such a "complicated scheme" because they weren’t lawyers. (Lawyer snobbery?)
But, the Chronicle story refers to a request by United Airllines in 1999 about some of its workers that got divorced in an alleged sham. In that instance, 21 United maintenance workers in Indianapolis were accused of defrauding the retirement plan by following steps laid out in a pamphlet called the Retirement Liberation Handbook, which gave instructions on how to use divorce to acquire benefits prior to retirement.
This story illustrates the desperation some people fees in this difficult time. Even though the Dallas area has fared better than other areas of the country, people get divorced for various reasons. During my career as a Dallas Divorce Lawyer, I been aware of the occasional situation where the parties had other motives for a divorce than simply irreconcilable differences. In each situation, the "sham" divorce backfired on the party that was trying to get away with something. It just doesn’t pay to be dishonest.