Continental accuses pilots of sham divorces

May 22, 2009 1:02:17 PM PDT
Continental Airlines Inc. is suing nine pilots that it says got sham divorces so their ex-spouses could collect their retirement benefits while they kept flying. [READ IT: See the lawsuit]

The airline said the pilots concealed the divorces from children and friends, then remarried their spouses after getting the money. The company said it paid out between $10 million and $11 million in suspicious pension distributions.

Eight of the pilots have been fired or quit, while one was rehired after he promised to pay back the retirement money, the airline said -- although he too was named as a defendant after failing to repay. The spouses were also named as defendants.

The airline and the committee that runs its pilots' retirement plan filed the lawsuit Wednesday in federal district court in Houston.

Continental asked the court to order the pilots to return the money and to declare that the company was not violating anti-discrimination laws in firing the pilots.

Continental charged that the pilots -- seven men and two women -- tried to take advantage of a loophole in a major federal pension law that in cases of divorce allows payment of benefits before the worker retires.

The pilots divorced and then usually assigned all their benefits to their ex-spouses, who then got state courts to issue orders transferring pension benefits in a lump sum to the ex-spouses, the airline charged.

"The divorces ... were subterfuges or sham transactions" because the couples had no intention of breaking up but divorced only to collect pension benefits without the pilots retiring, the airline said.

The lawsuit suggested that the pilots acted because they were afraid of being hurt by turmoil in the airline industry.

Several airlines have terminated pension plans and turned them over to the federal Pension Benefit Guaranty Corp., and the Continental pilots might have feared the same thing could happen at the Houston-based carrier.

The average Continental pilot qualifies for up to $900,000 in a lump sum upon retirement, but the PBGC limits payments far below that level, and it makes annual payments rather than lump-sum distributions.

Continental said it began receiving "a significant number" of requests for lump-sum pension payouts to ex-spouses of working pilots beginning in late 2005, and by mid-2007 the airline learned that the couples usually remarried after getting the money.

Other pilots besides the nine named in the lawsuit apparently tried the same ploy, according to the lawsuit. In some cases, the company stopped payments before they were made.

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