Jon Mallin
Click to Visit the Articles Section
The articles section of WWW.QDRO.PRO has many helpful articles for divorcing parties and their attorneys. Below is a brief description of each article:
- Disposition of Retirement Plans in Divorce — This article is a primer on QDROs. It is especially helpful for people who are entirely unfamiliar with the division of retirement plans.
- Dangers of Using QDRO Forms – This article warns about the risks of using so-called “model” QDROs, online QDROs or one-size-fits-all QDROs.
- The QDRO Process Steps – This article, like the primer, is a good read for someone who doesn’t know where to begin. It explains when a QDRO is drafted, submitted to the plan and entered with the court which steps do not always take place in that order, as the article explains.
- Coverture Methods — This article explains methods of determining the marital portion of a retirement benefit. Although this is one of the more advanced topics, it is critically important that divorce attorneys understand coverture methods. In many states, including Michigan, the coverture method used can be negotiated by the parties. The inadvertent selection of a coverture method that disadvantages your client would be a significant error. Attorneys: If you do not know the difference between accrued coverture and prospective coverture, then you definitely should take the time to read this article.
- Survivorship — Shared Payment and Separate Interest — What happens one one of the divorcing parties dies? Answer: it depends on the QDRO and the plan rules. This is the most advanced topic covered by the articles. The difference between these two division schemes is guaranteed to have a significant impact on the divorcing parties. We assist our clients in choosing between these two schemes and explain the implications of each.
- Timing Considerations and Malpractice Traps – This article explains why it is important to get the QDRO done right and done expeditiously. Attorneys who put QDROs on the back burner or dabble in filling out forms, should read this article (and increase their malpractice insurance!).
- For Attorneys — Judgment Examples – This article provides a handful of examples of Judgement of Divorce provisions for dividing a retirement account or pension plan. Frankly, we still see many Judgments with poorly drafted awards. This invariably creates headaches for us, the divorcing parties and the attorneys. Properly drafted Judgment provisions will make the process run much smoother. For cases in which we are retained to prepare the division orders, we will assist attorneys with drafting Judgment provisions at no additional charge.
- Non-Qualified Plan Orders – Non-Qualified Plans typically cover only the most highly compensated employees at a company. These plans, sometimes referred to as “top hat” plans, require special division orders that are not QDROs. It is vitally important to discover these plans because they often pay substantial retirement benefits. If you encounter a Non-Qualified Plan in a divorce, you need the assistance of an expert in retirement plans.
All of these free articles are available on our website. We have other articles covering various topics that we provide to clients on an as-needed basis to help them understand the issues that arise in their particular case. If you have questions about any of the articles, please call Jon Mallin at 248.865.4700 x281 or email him at JON@QDRO.PRO.
Family Law attorneys/lawyers and mediators, I have revised our proposed Judgment of Divorce examples for Qualified Domestic Relations Orders (QDROs). Please note that retirement plans vary considerably and the examples are intended to be suitable for many situations. Nonetheless, they are not appropriate for all situations. Accordingly, please provide us with the provisions you draft into the Judgment of Divorce for our review sufficiently prior to the date that the parties intend to execute it and enter it with the Court. In cases where we are drafted into the Judgment of Divorce to prepare the division orders, we will review draft language at no additional charge. Please click the image below to visit the Articles section of our website. Article 7 contains the proposed Judgment of Divorce examples.
Click Here for Proposed Judgment Examples re: QDROs
We are frequently asked questions about divorcing parties’ life expectancies. Often clients remark along the lines of “she’ll live longer than me because she’s female… so….” While it is true that females, on average, live longer than males, retirement plans are not permitted by law to use gender specific life expectancy tables when calculating benefits. This holds true for both Qualified Domestic Relations Order (QDRO) purposes and Eligible Domestic Relations Order (EDRO, a state or municipal order in Michigan) purposes.
When valuing a pension, however, one should not turn a blind eye to gender or health of the parties. These factors can affect predictions. However, I want to reiterate my critique of pension appraisals. Mortality tables are based on the law of large numbers. They estimate life expectancies and are intended to be accurate in the aggregate. For example, an insurance company selling life insurance may rely on certain mortality tables and if they sell a sufficient number of policies, the tables could be quite useful and accurate. However, when dealing with a small sample size (in the case of a divorcing party, one), mortality tables may not be accurate. They are better than simple guesses but they may turn out to be way off. Combined with the fact that other assumptions are required to be made to value a pension benefit (interest rates, taxes, commencement age and many others), valuations tend to be only partially scientific. Accordingly, we strongly recommend against reliance on pension appraisals or valuations and almost universally recommend division by QDRO or other division order.
When explaining the difference between a valuation and division by QDRO, we often use a “loaf of bread” analogy. The valuation concerns the size of the loaf of bread. Generally, the division of a retirement asset is independent of the size of the loaf. It simply seeks to divide the loaf, often down the middle.
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I re-themed the QDRO Blog yesterday. The new theme has many advantages, including:
- Ability to display more of the custom graphics from the main website for a seamless experience.
- Better navigation tabs beneath the header.
- Easier subscribe/follow options in the right-hand column.
- Excerpts on the main page instead of full posts.
- Better optimization for more search engine traffic.
If you notice any bugs or have any recommendations, please email JON at QDRO.PRO.
Thompson posted a news brief last week regarding the upcoming final regulations required by the Pension Protection Act of 2006. The final regulations will be released in April and will clarify that a domestic relations order otherwise meeting the requirements to be a QDRO shall not fail to be treated as a QDRO solely because the order is issued after, or revises, another DRO or QDRO, or because of the time at which it is issued. Specifically anticipated are examples that address post mortem QDROs. There will be further discussion of the statutory requirements of a QDRO which are intended to reduce uncertainty and expedite the QDRO process. The rules will be helpful to everyone involved in the QDRO process — divorcing parties, attorneys who prepare QDROs and plan administrators.
This is on my radar and as soon as the final regulations are released, I will post to this blog with a link. If you follow @qdropro on Twitter, you will receive a tweet when the link is posted.
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I would be happy to answer any pressing QDRO questions you may have. Generally, if you ask something I can answer without research, then there is no charge. I may ask your permission to discuss your situation on my blog without naming names. If you choose to keep your situation completely private, that is fine with me too. The best ways to contact me are by email at JON@QDRO.PRO (no dot com or dot net on the end) or by phone at 248.865.4700 x281.
I am an attorney with 10 years of experience in the legal profession. I have prepared hundreds of accepted QDROs. I can give you authoritative answers. I look forward to helping you.
This question comes up more than you may expect. Scenario: divorce attorney is wrapping up a divorce and the client has insufficient funds or an unwillingness to pay the entire legal bill. The alternate payee’s attorney comes up with the idea of getting paid from the client’s share of the 401(k). We get a call asking, “Can we do this?” Without passing on the merits of such an arrangement, there is a way to do this.
The attorney will not qualify as an alternate payee and the plan will not pay the attorney money under a QDRO. However, the alternate payee may take an immediate distribution under most defined contribution plans (which would be realized for income tax purposes but not subject to the 10% penalty) and pay all or a portion of the distribution to the attorney. To facilitate this arrangement, sometimes the alternate payee will use the attorney’s address as his or her mailing address.
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Sometimes we’re asked to explain our web address. Instead of a .COM we have a .PRO. The .PRO domain names are relatively new and have only been around about two years. They are reserved for licensed professionals like attorneys. There is a verification process to insure that all .PROs registered are operated by licensed professionals. Only certain registrars have been authorized to register .PRO domain names. .PRO domain names, though still relatively uncommon, are growing in popularity. Millions of .PROs have been registered.
For us, the .PRO was a natural fit. The law firm was already named QDRO Professionals PLLC. The .COMs we wanted were already taken. We ended up with a confusing URL of qdroprofs.com. QDRO.PRO is easier to remember. You may notice that when you type WWW.QDRO.PRO into your web browser, it redirects to the qdroprofs.com site. This is done for technical reasons but rest assured that QDRO.PRO will always point to our website.
Sometimes divorcing couples think they can make an end-run around a qualified domestic relations order (QDRO) and simply have the participant withdraw money prematurely from a 401(k) account and pay it to the ex-spouse. We are commonly asked questions about this scheme. Short answer: Really bad idea.
A premature distribution from a 401(k) is subject to a 10% tax “penalty” and destroys the tax sheltered nature of the withdrawn amount. Gains, if any, on the withdrawn amount would be taxable in the tax year the money is withdrawn in addition to the 10% tax penalty. With a QDRO, the tax penalty is avoided and the tax-sheltered nature of the ex-spouse’s award can be preserved by either segregating the money into an account for the ex-spouse’s benefit with the plan (if permitted by the plan) or directly rolling the money over into an IRA. I’ll leave open the possibility that if, and only if, the 401(k) award is less than $4,500 in it and the ex-spouse intends to take an immediate distribution and capital gains on the $4,500 is minimal, then the cost of preparing a QDRO ($450) may exceed the tax penalty. Frankly, I’ve never encountered this situation.
On the pension side (defined benefit plans), there really is no end-run around a QDRO at all. Even if the participant agrees to make monthly payments to the ex-spouse and the ex-spouse trusts the participant, the ex-spouse would be forced into a shared payment arrangement, would be unable to draw at the participant’s earliest retirement age and, most importantly, benefits would cease upon the prior death of the participant (read our article on survivorship rights). To further complicate matters, the parties would not avail themselves to Section 72(m)(10) of the Internal Revenue Code and the participant would bear the tax bill for the entire pension payment. Adjusting for taxes in such a situation would likely turn into a dispute between the parties.
As promised in my post “Common QDRO Question: Can I file a QDRO after the divorce is final?”, I will address whether it may be too late for you to obtain a QDRO.
All states have statute of limitations on the enforcement of noncontractual monetary obligations, which includes divorce judgments. The statute of limitations period varies by state. In Michigan, the limitation is 10 years per MCL 600.5809.
We frequently receive calls from alternate payees who divorced more than 10 years ago. In some cases, they have been advised by their attorneys that the statute of limitations has run and they cannot file a QDRO. This is not always true. In Michigan (and in other states, I suspect), the statute of limitations does not begin running (the clock ticking) until the claim actually “accrues.” So, for example, if the divorcing parties were both 40 years old at the time of divorce and the judgment provides that the alternate payee may not begin to receive benefits until the participant attains the plan’s earliest retirement age (quite common, usually age 55), then theoretically the statute of limitations has not run out until the alternate payee reaches age 65 (ten years from the earliest date the alternate payee could have received benefits). This is actually 25 years after the divorce but it is permitted under Michigan law.
In addition to the statute of limitations, there are other compelling reasons why a QDRO should be filed with the judgment or shortly thereafter. Click the business card below to read our “Timing Considerations and Malpractice Traps” article.
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Shared Payment vs. Separate Interest is one of the thorniest issues in the QDRO world. I believe our article on this topic is the best primer available on the ‘net. If you’re still confused after reading the article, give us a call at 248.865.4700 x281. Click on the business card below to read the article:
Click to Read about Shared Payment and Separate Interest QDROs
What are QDRO Determination Letters?
Some retirement plans will send divorcing parties “determination letters” following the receipt of a court-entered order that the plan finds acceptable — a valid QDRO. A determination letter is simply a statement of the plan’s interpretation of the QDRO. A determination letter on a 401(k) QDRO, for example, might show the percent or dollars assigned to the alternate payee and whether loans were included or excluded. On a pension, a determination letter would likely discuss the extent of survivor benefits.
Plan Policies
Plans differ in their administrative policies but a common policy is to issue a “Preliminary Determination” that is subject to the parties disputing any mistakes for 30 days. If no valid dispute arises, the Preliminary Determination becomes a “Final Determination” and the QDRO is implemented. Generally, divorcing parties have the option of waiving the 30 day period if they have no dispute with the Preliminary Determination.
What should you do with a determination letter?
You should have your attorney review the determination letter to make sure it comports with the QDRO. Mistakes should be corrected within the period allowed by the plan.
QDRO Professionals’ Policy on Determination Letters
We’ll review the letter and report back to you and the plan if there are any problems with the plan’s determinations. This service is included in our flat fees for QDRO preparation. If it is not clear whether we were copied on a determination letter, send us a copy.
I just added an article to our primary website on the division of Non-Qualified Plans not subject to QDRO in divorce proceedings. The article is entitled “Non-Qualified Plan Orders.” Click the business card below to visit the articles section of our primary website:
Click to Visit QDRO Professionals Articles
Over the past few years, the QDRO landscape has changed. Divorcing couples and divorce attorneys can sometimes prepare a QDRO by clicking a few boxes and auto-generate a QDRO. I briefly considered launching an online QDRO preparation system about two years ago and decided against it. After considering the merits of such a system, I concluded that online QDRO preparation is a recipe for disaster.
“EDRO” is a acronym for Eligible Domestic Relations Order. It’s the Michigan version of a QDRO that is used for certain plans covering state and local government employees and retirees. ERISA, which creates the federal statutory basis for QDROs, does not apply to these public sector plans. To provide for the division of state and local government employees’ and retirees’ pensions and retirement accounts in divorce, the Michigan legislature adopted the Eligible Domestic Relations Order Act (1991 PA 46; MCL 38.1701). The requirements for an EDRO and quite similar to but somewhat different from a QDRO. Our website, WWW.QDRO.PRO, refers to QDROs and EDROs. Our standard Request Form can be used to request QDRO(s) and/or EDRO(s).
