General QDRO Info

TOP 3 QDRO MISTAKES & HOW TO AVOID THEM

QDRO MistakesQDRO MISTAKE 1: WRONG METHOD OF DIVISION FOR RETIREMENT PLAN TYPE

The language in the settlement agreement and QDRO should be applicable to the type of retirement benefits being divided.  There are two main types of retirement plans, namely 1) Defined Contribution Plans and 2) Defined Benefit Plans.  401(k), 403(b), and 457 deferred compensation plans are all types of “Defined Contribution Plans.”  The benefits under defined contribution plans are based upon actual monetary contributions to the plan, and the investment performance of said contributions.  Whereas, the benefits under defined benefit plans, commonly known as “traditional” pension plans, are paid as a monthly annuity based on a formula tied to the plan participant’s years of service credit, final salary, and age at retirement.  Defined Benefit plan benefits are not solely based on monetary contributions.

The language dividing defined contribution plans should (and conversely, the language dividing defined benefit plans should not):

  • Refer to the plan participant’s total account balance
  • Express the former spouse’s (alternate payee’s) interest as either a dollar amount or percentage of the account, as of a particular valuation date (usually the parties’ date of separation)
  • Address whether the alternate payee’s share should or should not be adjusted for interest or investment earnings
  • Provide for a new account to be created in the Alternate Payee’s name
  • Provide the option of an immediate distribution or rollover of Alternate Payee’s share

The language dividing defined contribution plans should not (and conversely, the language dividing defined benefit plans should):

  • Reference the Time Rule Formula or coverture formula
  • Reference the participant’s “accrued benefit”
  • Provide for a “monthly” benefit
  • Reference COLAs or early retirement subsidies
  • Address survivor benefits
  • Delay the alternate payee’s benefit commencement until the participant is eligible for retirement or actually retires

QDRO MISTAKE 2: QDRO PREPARATION TIMING

Ideally, the QDRO should be prepared as soon as the parties have reached a basic settlement regarding the division of the retirement asset.  This will allow the QDRO to be filed concurrently with the Judgment of Dissolution, or even be incorporated into the Judgment.  Otherwise, the QDRO should be prepared as soon to the time of divorce as possible.  If a QDRO is not filed and any of the following events happen, the alternate payee may entirely lose his/her benefits:

  • Participant terminates employment and takes a full plan distribution under a defined contribution plan
  • Participant retires and begins commencement of benefits without notifying the alternate payee
  • Participant dies without a QDRO in place securing survivor benefits for the alternate payee
  • Participant takes a loan out which significantly reduces the account balance available for division pursuant to a QDRO

For more consequences related to QDRO timing, click here.

Another problem that is becoming more and more common when parties wait to draft the QDRO is that plans sometimes undergo a change in plan administrator.  When a new plan administrator takes over, they will usually not perform any calculations regarding benefits accrued prior to their plan administration date.  For example, if the parties’ date of separation was in 2005, but the plan administrator changed in 2007, the plan administrator will reject a QDRO with a valuation date in 2005 because they do not have records prior to 2007.  This can present significant problems if the parties do not have their own plan statements for the time period from the date of marriage to date of separation; and will increase the expense involved in the QDRO as the parties may need to retain an actuary or accountant to perform a calculation to determine the community property interest in the benefits.

QDRO MISTAKE 3: BLINDLY TRUSTING THE MODEL QDRO

Some parties, or family law attorneys, will draft a QDRO by taking the plan’s “model” or “sample” QDRO and inserting the parties’ names with little or no other revisions.  This should never be done unless the parties and/or attorneys clearly understand every single provision within the model QDRO, and are aware of the possible alternate provisions, based on the plan’s terms and the California law regarding marital property rights.

Most model QDROs are drafted to favor the plan participant; they are not drafted to divide the benefits as equally as possible.  Model orders can heavily favor the participant with regard to issues like investment earnings and losses, and survivor benefits. Further, the model QDRO may have been drafted in a different state than where the divorce took place, which can have a huge effect on the division of benefits.  For example, in California, the community property interest stops accruing on the parties’ date of separation; however, other states utilize other dates, such as the date of divorce filing, or the date of the entry of Judgment of Dissolution, both which may be years after the parties’ date of separation.  Utilizing a model QDRO from another jurisdiction could have the effect of awarding the alternate payee far more benefits than he/she would legally be entitled to in California.  Further, many individuals who draft their own QDROs are not able to format the QDRO correctly to be accepted by the court that handled their divorce.  In California, QDROs must be signed by both parties and the judge; however, many model QDROs only leave space for the judge’s signature.

DO YOU NEED HELP WITH A QDRO?

If you have questions about the division of retirement benefits due to your California divorce or legal separation, or if you would like to get started on your Qualified Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to info@qdrohelper.com or by visiting the Get Started page.  We proudly assist clients throughout the United States as long as the divorce or legal separation took place in California.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

Joinder of Employee Benefit Plan

What is a Joinder of Employee Benefit Plan?Joinder

“Joinder” is a legal process that names a third-party claimant to a divorce case and notifies the retirement plan that a former spouse has a right to a portion of an employee’s benefits.  A joinder is completed by filing various joinder forms with the court, serving the joinder forms on the retirement plan administrator, and the retirement plan administrator filing a response to the joinder.  The Judicial Council joinder forms can be found on the California Courts website.

When Are Joinders Required?

Joinders are required by most state, county, public school or university, or public agency retirement plans.  Some plans that require joinders are California State Teachers’ Retirement System (CalSTRS), the University of California Retirement System (UCRS), and various county and city employee benefit plans (such as SDCERA, SDCERSOCERS, LACERA, LACERS, ICERS, KCERA, and SBCERA, just to name a few).  The easiest way to determine if a joinder is required for your retirement plan is to ask your retirement plan administrator.  A summary of the types of plans that require joinders can also be found here.  Joinders are never utilized when dividing federal government plans, or many ERISA governed plans.

When Should I Have a Joinder Prepared?

A joinder should be filed with the court as soon as possible after the Petition for Divorce (FL-100) has been filed and the parties are aware of retirement benefits that will need to be divided.  A joinder will typically cause the retirement plan to place a hold or freeze on the employee’s account until the plan administrator receives a Domestic Relations Order (DRO), Qualified Domestic Relations Order (QDRO), or other court order dismissing the joinder.  A hold will typically mean that an employee cannot retire and begin receiving benefit payments, or take any loans or distributions, until the hold is lifted by the plan administrator.  Therefore, joinders are very effective in ensuring that assets remain frozen until a divorce is completed and a court order regarding the division of those benefits is entered with the court.

Need Help With A Joinder of Employee Benefit Plan? $200 Flat Fee Joinder Preparation

If you have questions about joinders for employee benefit plans due to your California divorce or legal separation, or if you would like help in filing a joinder, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  We offer joinder services for a $200 Flat Fee per retirement plan; please see our Fee Schedule for details.  You can also request information by sending an email to info@qdrohelper.com.  We proudly assist clients throughout the United States as long as the divorce or legal separation took place in California.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

QDROs & the Effect of the Supreme Court Decision on DOMA

 

QDROs & DOMAPrior to the 2013 Supreme Court decision ruling Section 3 of the Defense of Marriage Act (DOMA) unconstitutional (United States v. Windsor), the majority of retirement plans would not accept Qualified Domestic Relations Orders (QDROs) for same-sex spouses during divorce.  Section 3 of DOMA provided that for purposes of determining the meaning of any act of Congress, marriage means only a legal union between one man and one woman as husband and wife, and spouse refers only to a person of the opposite sex who is a husband or a wife.  Under DOMA, most plan administrators did not recognize same-sex parties as spouses.  QDROs are governed by ERISA and the Internal Revenue Code.  Since under ERISA § 206(d)(3)(K) and IRC § 414(p)(8), an “alternate payee” under a QDRO can only be a spouse, former spouse, child, or other dependent of a  participant, same-sex couples would not qualify for QDROs because same-sex marriage partners were not recognized as “spouses” or “former spouses.”  As such, same-sex spouses could not take advantage of QDROs as a way to fairly and equitably divide retirement assets, and to ensure that the taxes on each party’s share were allocated to the proper party. This often led to complications in same-sex divorces, including attempts to equalize other assets whenever possible to ensure that the negative tax consequences of a participant paying benefits directly to a former spouse could be avoided. Such inequity between opposite-sex divorce and same-sex divorce with regard to the division of retirement benefits is no longer an issue, although it may take some time for all retirement plans to implement new policies and procedures. Now that the definition of “spouse” under DOMA been determined to be unconstitutional, there is no longer federal law prohibiting employers and retirement plan administrators from accepting QDROs for legally married same-sex married couples.  Also, “surviving spouse” benefits that were previously prohibited will now also be available to same-sex spouses.

You can read more about the implication of the DOMA decision on employee benefits here.

REGISTERED DOMESTIC PARTNERSHIP QDRO

The federal government still does not recognize registered domestic partners as “spouses.” As such, the division of retirement benefits for Dissolution of Registered Domestic Partnerships is still quite complicated. When the retirement plan is subject to ERISA, QDROs cannot be utilized to divide retirement benefits for Registered Domestic Partnership cases. For certain retirement plans that are not subject to federal ERISA law (such as CalPERS, CalSTRS, or other city, county, or state government benefits) it is possible to utilize a Domestic Relations Order (DRO) for the division of retirement benefits. However, since the IRS does not recognize domestic partners as spouses, there are complicated tax issues to be considered. Generally, all benefits received by the non-employee partner from the plan will be taxed to the employee partner as income.

NEED HELP WITH A SAME-SEX MARRIAGE QDRO?

If you have questions about the division of retirement benefits due to your California same-sex dissolution of marriage or legal separation, or if you would like to get started on your Qualified Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to info@qdrohelper.com.  We proudly assist clients throughout the United States as long as the divorce or legal separation took place in California.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

Cash Balance Plan QDROs

cash balance plan QDRO HelperSome employers offer a type of retirement plan known as a “cash balance plan” or “cash balance pension plan.”  Cash balance plans, like any other assets accrued during marriage, are community property and are subject to division pursuant to divorce in California.  We have already written blogs about the division defined benefit plans (i.e. traditional pension plans) and defined contribution plans (i.e. 401(k), 457, and 403(b) plans) by Qualified Domestic Relations Order (QDRO).  Cash balance plans are basically a hybrid between these two other plan types, but are classified as a type of defined benefit plan.  QDROs are also utilized to divide cash balance plans in divorce.

HOW A CASH BALANCE PLAN WORKS

A cash balance plan awards pension credits each year based on a percentage of the employee’s salary for that year.  The contributions made to the cash balance plan will also receive interest credits that are set at a predetermined rate by the plan (either a fixed rate or a variable rate linked to an index). In other words, the earnings on a cash balance account are based upon a predetermined interest rate and not tied to fluctuations of the stock market the way that earnings and losses on a 401(k) plan are.  The plan administrator will invest the funds and any increases or decreases in the value of the plan’s investments will not directly affect the benefit amounts paid to the employee.  Unlike a defined contribution plan, the amount of the employee’s earnings/interest is fixed and the investment risks and benefits are borne by the employer, not the employee.  Once the employee is eligible to receive benefits, the employee can choose either a monthly annuity or a lump sum distribution of his/her cash balance plan benefits.  You can learn more about Cash Balance Plans and how they differ from other types of retirement plans at the U.S. Department of Labor website.

CASH BALANCE PLAN QDRO ISSUES

It is critical for QDRO purposes to determine whether the cash balance plan was converted from a company’s previous defined benefit plan, or was initially created as a cash balance plan.  Many companies have converted their traditional pension plans to cash balance plans because it costs the employer much less to fund a cash balance plan than a traditional pension plan.  Regarding the method of division under a QDRO, if a plan was always a cash balance plan (i.e. there were no traditional pension benefit contributions), and the parties were married when the employee began participating in the plan, then the former spouse of the employee would be awarded a 50% of the account balance as of the parties’ date of separation, plus a proportionate share of annual interest credits.  However, if traditional pension benefits were earned during the marriage and then the plan converted to a cash balance plan, the QDRO must address how to divide both types of benefits earned.  Usually it is most accurate to apply the Time Rule Formula to the benefits accrued prior to the conversion (i.e. the benefits accrued under a traditional pension), and then to award the former spouse 50% of the contributions and interest credits from the date the plan converted to a cash balance plan through the parties’ date of separation.  The nature of the plan, the length of the employee’s employment, and whether the employee had a traditional pension plan that was converted to a cash balance plan during the marriage are critical issues for purposes of drafting a Qualified Domestic Relations Order.  As you can imagine, the language in your cash balance plan QDRO must be carefully drafted to address these issues.

DO YOU NEED HELP WITH A CASH BALANCE PLAN QDRO?

If you have questions about the division of a cash balance plan due to your California dissolution of marriage or legal separation, or if you would like to get started on your Qualified Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to info@qdrohelper.com.  We proudly assist clients throughout the United States as long as the divorce or legal separation took place in California.

DISCLAIMER: ADVERTISEMENT.
Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

 

Additional QDRO Benefits: Taxes, Liquidity, and Bankruptcy, Creditor & Tax Lien Protection

TYPICAL REASON FOR HAVING A QDRO

The most common reason for parties to have a Qualified Domestic Relations Order (QDRO) is to divide retirement benefits due to divorce or legal separation.  Most retirement plans require a QDRO, or similar court order, before benefits can be paid from the plan to an alternate payee (non-employee former spouse of the plan participant).  However, there are other benefits to QDROs that are sometimes overlooked.  For instance, the parties may consider an equalization of other assets in order to avoid the necessity of preparing a QDRO, but QDROs can provide additional benefits that other property equalizations cannot.

TAX BENEFITS OF QDROs

One of the main tax benefits of a QDRO is the exemption from the early distribution or premature withdrawal penalty.  We have previously elaborated on these tax benefits in this blog post.  For California residents, the QDRO exemption under IRC §72(t)(2)(c) will typically save approximately 12% in combined state and federal taxes on any distributions made pursuant to a QDRO prior to the alternate payee reaching age 59 ½.  QDROs can also allow for the continued tax-deferred growth of benefits after the death of the participant, which would not normally be available to a former spouse beneficiary under an IRA.

QDROs & LIQUIDITY    

Due to restrictions on distributions built into many retirement plans, the participant cannot receive any funds until reaching the plan’s earliest retirement age.  However, for some plans, QDROs will allow benefits to be distributed to an alternate payee prior to the date that such distribution would be available for the participant.  This can assist in providing the alternate payee with the necessary liquidity due to other property equalizations, such as buying out the participant’s interest in the family home.  (See IRC §414(p)(4), (9); Treas Reg §§1.401(a)-13(g), 1.409A-2-1.409A-3)

BANKRUPTCY, TAX LIEN AND CREDITOR PROTECTION UNDER QDROs

Assets held under qualified retirement plans are usually exempt from the bankruptcy estate (11 USC §522). The alternate payee’s share of the benefits can also be protected from tax liens against the participant (U.S. v Taylor (8th Cir 2003) 338 F3d 947). QDROs can also protect assets from other creditors under Cal. Civ. Proc. Code §704.115, with some exceptions, such as enforcing orders under the Mandatory Victims Restitution Act, as in U.S. v. Novack.

PREVENTING LOSS OF BENEFITS ON PARTICIPANT’S DEATH

As mentioned in our “When Should I File My QDRO?” blog, if a QDRO is not filed and a participant dies, the alternate payee may lose his/her entire interest in the retirement benefits.  For example, if a participant dies while unmarried and while still working, there may be a “Qualified Pre-Retirement Survivor Annuity” or “QPSA” available.  A QDRO could secure all or a portion of the QPSA benefits for the former spouse of the participant in such a case.  QDROs can also ensure that a former spouse will receive all or a portion of other survivor benefits paid upon the participant’s death, including those paid if the participant dies after retirement.

DO YOU NEED A QDRO?

If you have questions about the division of retirement benefits due to your California dissolution of marriage or legal separation, or if you would like to get started on your Qualified Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to info@qdrohelper.com.  We proudly assist clients throughout the United States as long as the divorce or legal separation took place in California.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

SCERS DROs: Dividing Sacramento County Employees’ Retirement System Benefits in Divorce

SCERS QDRO: Sacramento Employees Retirement System- QDRO HelperSCERS & DIVORCE – WHAT IS A DRO?

Employees of Sacramento County are members of the Sacramento County Employees’ Retirement System (SCERS).  SCERS benefits take the form of a defined benefit plan, which means that the benefits paid to retired members are based upon a formula.  Retirement payments are based upon three factors: the member’s age at retirement, years of service, and salary.  In order to be vested in SCERS, members must have 10,440 service credits; members earn one service credit for each hour of pay.  Members make contributions to SCERS through regular payroll deductions and it is not possible to borrow funds from the SCERS retirement fund account.

Retirement benefits acquired during marriage, such as SCERS benefits, are subject to division during divorce.  The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO.  SCERS must have a valid, court-filed DRO that has been signed by both the parties and the judge in order to make payments directly to a non-member spouse.  Distributions of SCERS benefits are governed by Article 8.4 of the County Employees’ Retirement Law of 1937, which begins at Section 31685 of the California Government Code.  This legislation provides for the division of the community property interests of SCERS Members in accordance with the provisions of a Court order setting forth the terms and conditions of the dissolution of a Member’s marriage issued pursuant to Section 2610 of the Family Code.

MANDATORY JOINDER & OBTAINING INFORMATION

Joinder is a legal process that names a third-party claimant to a divorce case and notifies the retirement plan that a former spouse has a right to a portion of an employee’s benefits.  SCERS requires a joinder to be filed and served on the plan before a Domestic Relations Order can be approved and implemented.  Both a joinder and DRO will be required before a non-member can begin receiving payments from SCERS.  Your family law attorney may have already completed a joinder; however, QDRO Helper also offers joinder services for a $200 Flat Fee.

As soon as a dissolution of marriage action is filed in court, the parties should notify SCERS in writing about the pending dissolution, including the parties’ date of marriage and separation, names, dates of birth, social security numbers and current contact information.  SCERS is required to maintain confidentiality of member’s records; however, either upon subpoena or written authorization from the SCERS member, the plan will provide a valuation of the Member’s account. The valuation will specify the approximate community property interest that the former spouse can either withdraw or receive as a monthly retirement allowance for life when eligible.

DIVISION OF BENEFITS

The most common method of division for a non-retired member is to award the non-member spouse 50% of the accumulated retirement contributions and service credit attributable to the period of service from the parties’ date of marriage through their date of separation.  Prior to the member’s retirement, a Nonmember may elect to establish a separate account and may exercise the same rights as a Member, except that a Nonmember is not eligible to apply for or receive a disability retirement allowance, a Nonmember’s pre-retirement death benefits shall consist of return of the contributions and interest in the Nonmember’s account, and a Nonmember is not eligible to participate in the election of trustees.  A Nonmember may retire and elect optional allowances.  SCERS will ensure that the combined benefits payable to the Member and Nonmember are the actuarial equivalent of the value of the benefit to which the Member would have been eligible had no division of the community property interest occurred.  Each party will have a separate account and will have exclusive control over his/her own account.

If a member is already retired at the time that DRO is implemented, SCERS will split the Member’s benefits and a separate account will not be created for the Nonmember.  Instead, the Nonmember will receive a portion of each payment made to the Member, typically the portion is based upon the Time Rule Formula.

NEED A SCERS DRO?

If you have questions about the division of SCERS benefits due to your California dissolution of marriage or legal separation, or if you would like to get started on your Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to a friendly California QDRO attorney at info@qdrohelper.com.  We proudly assist clients throughout California and no in-office appointments are required.

If you have questions about your particular SCERS retirement benefits, you can contact SCERS at (916) 874-9119 or request information in writing addressed to Sacramento County Employees’ Retirement System, 980 9th Street, Suite 1900, Sacramento, CA 95814.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

QDROs & Loans: How Loans on Retirement Accounts Affect Divorce

QDRO LoansRETIREMENT PLAN LOANS & DIVORCE

Participants in defined contribution retirement plans often have the option of taking out loans.  These loans are usually paid back via paycheck deductions over a period of years and these loans usually cannot be assigned to any other party for repayment.  If a defined contribution plan, such as a 401(k), is divided during a divorce or legal separation, it is critical to address any outstanding loans.

HOW TO FIND OUT IF THERE IS AN OUTSTANDING LOAN

You should first look for an outstanding loan balance on the account statement.  Sometimes there will be a clearly labeled section for loans.  Other statements can be a bit more difficult to read, for example a statement may show an “account balance” of $25,000 but list the “total account value” at $35,000 elsewhere, which would indicate a $10,000 outstanding loan.  Plan administrator’s usually consider outstanding loans as assets which should be added to the value of the account to determine the account’s true value.  The participant in the plan is also required to make full disclosure of assets and obligations during a divorce and the marital settlement agreement should clearly address outstanding loans.  If the participant represents that there are no loans, the settlement agreement should include a statement that the party “represents and warrants that he/she has not taken any loans or withdrawals from the [insert plan name] account, and he/she shall be prohibited from taking any loans or withdrawals until a QDRO is implemented by the plan, creating a separate interest for [the other party].”  If a withdrawal or loan, in violation of the automatic temporary restraining order, is feared by the non-employee spouse a notice of adverse interest to the plan, or a joinder, will often cause a hold to be placed on the participant’s account pending receipt of a QDRO by the plan administrator.

IS A LOAN SEPARATE PROPERTY OR COMMUNITY PROPERTY?

If there is an outstanding loan, it must be determined whether the loan is community or separate property.  Parties sometimes view any loan taken out from the date of marriage through the date of separation as community property; other parties will agree to look at what the loan funds were used for to determine if the loan is community property or separate property.

Separate Property Loans in QDROs

If a loan is determined to be the participant’s separate property, then the QDRO needs to be drafted carefully to award the correct amount to the former spouse (or “alternate payee”).  For example, if a QDRO awards 50% of the participant’s account balance to the alternate payee as of the parties’ date of separation, but does not address loans, the alternate payee’s share could unintentionally be reduced by the value of the outstanding loan.  By way of an example, if the account balance at the date of separation was $50,000, but there was an outstanding loan of $10,000, which would bring the total account value to $60,000, then the alternate payee may accidentally be awarded $25,000, instead of the $30,000 to which she is entitled due to a separate property loan.  To ensure that the alternate payee’s share is not reduced by the other party’s separate property loan, the QDRO must include the loan balance in the account balance prior to calculating the 50% award to the alternate payee.

Community Property Loans in QDROs

Since it is usually not possible to make an alternate payee responsible for loan repayment under a QDRO, if a loan is determined to be community property, the QDRO must be carefully drafted to ensure that the alternate payee’s share of the account is reduced by an equal portion of the outstanding community property loan.

POTENTIAL FOR QDRO REJECTION DUE TO OUTSTANDING PLAN LOANS

Most retirement plans will not distribute funds in excess of the outstanding loan.  If the parties have agreed to equalize assets and award the alternate payee 100% of the participant’s account, they should determine exactly what the dollar amount of the distribution will be under the terms of the plan before filing the QDRO.  For example, if there is $30,000 in an account, plus a $5,000 outstanding loan, the plan will likely only distribute a maximum of $25,000 to the alternate payee.  Alternatively, if a QDRO awards the alternate payee $30,000 in the same example, the QDRO will likely be rejected by the plan because the maximum that can be distributed under the plan’s terms would be $25,000.

QUESTIONS ABOUT LOANS AND QDROs?

If you have questions about the division of defined contribution plan accounts due to your California dissolution of marriage or legal separation please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to info@qdrohelper.com.

 

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

SBCERA DROs: Dividing San Bernardino County Employees’ Retirement Association Benefits in Divorce

SBCERA & Divorce: QDRO Helper California QDRO AttorneysSBCERA & DIVORCE – WHAT IS A DRO?

Employees of San Bernardino County are members of the San Bernardino Employees’ Retirement Association (SBCERA).  SBCERA is a public agency created to administer retirement benefits.  These retirement benefits take the form of a defined benefit plan, which means that the benefits paid to retired members are based upon a formula, not monetary contributions to an account (like a 401k plan).  Retirement payments are based upon the member’s age at retirement, years of service credit, highest 12 consecutive months of compensation, and the benefit formula.  There are two types of members under SBCERA: General member and Safety Members.

Retirement benefits acquired during marriage, such as SBCERA benefits, are subject to division during divorce.  The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO.  The DRO directs the SBCERA to pay benefits directly to the non-employee spouse.  SBCERA cannot legally make payments to a member’s former spouse without a valid, court-filed DRO that has been signed by both the parties and the judge.

JOINDER REQUIREMENT

Joinder is a legal process that names a third-party claimant to a divorce case and notifies the retirement plan that a former spouse has a right to a portion of an employee’s benefits.  SBCERA requires a joinder to be filed and served on the plan before a Domestic Relations Order can be approved and implemented.  Joinder is the first step in obtaining an Order to divide SBCERA benefits.  Your family law attorney may have obtained a joinder; however, QDRO Helper also offers joinder services for a $200 Flat Fee.

DIVISION OF BENEFITS & RETIREMENT OPTION

Usually the non-member former spouse’s award is calculated as one-half of the benefits attributable to the member’s service in SBCERA during the time period from the parties’ date of marriage through their date of separation.  Your Domestic Relations Order (DRO) must specify the retirement option the member is to select at the time of retirement to provide for a continuance to a former spouse.  There are four options that can be used to provide survivor benefits, namely:

1. Unmodified Option –provides for a 60% continuance to an eligible surviving spouse. The former spouse may be entitled to a portion of a surviving spouse’s continuance. However, if the unmodified option was selected by the Member at retirement, but prior to the member’s divorce then the spouse named as the beneficiary at the time of retirement, which is now the former spouse, will no longer qualify for the unmodified continuance. This is pursuant to Government Code section 31760.1 or for death benefits under Government Code sections 31765, 31765.1, or 31786.

2. Option 2 – provides for a 100% continuance to the nominated beneficiary (i.e. former spouse).

3. Option 3 – provides for a 50% continuance to the nominated beneficiary (i.e. former spouse).

4. Option 4 – provides for various continuances to multiple beneficiaries, such as the former spouse and/or an eligible surviving spouse. Typically, the continuance is based on the calculation of a share of the benefit payable to the former spouse.

The DRO should also address pre-retirement death benefits in the event that the member dies during active employment.  Typically the former spouse is awarded one-half of the death benefits attributable to the member’s service in SBCERA during the time period from the parties’ date of marriage through their date of separation.

Unlike some other county retirement plans which offer “shared” or “separate” methods of division, SBCERA is unable to create separate accounts for the member and his/her former spouse.

NONMEMBER’S DEATH

The nonmember spouse has the right to name a beneficiary, or beneficiaries, for the nonmember’s share of the SBCERA benefits.  If the nonmember has not named a beneficiary, then the nonmember’s share of benefits will be paid to the nonmember’s estate.

NEED A SBCERA QDRO?

If you have questions about the division of SBCERA benefits due to your California dissolution of marriage or legal separation, or if you would like to get started on your Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by sending an email to info@qdrohelper.com.

DISCLAIMER: ADVERSTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

Valuation Dates for QDROS: A Common Mistake in Marital Settlement Agreements

QDRO valuation date: QDRO Helper California QDRO attorneysWHAT IS A “VALUATION DATE” FOR QDRO PURPOSES?

A QDRO (Qualified Domestic Relations Order) is a court order that divides retirement benefits due to divorce.  The valuation date for QDRO purposes is the date as of which the funds are to be divided.  For example, in a QDRO for a 401(k) plan awarding 50% to the non-employee spouse with a valuation date of September 30, 2011, the plan will look at the Participant’s account balance on September 30, 2011 multiply the account by 50% in order to determine the non-employee spouse’s share.  The plan administrator will not look at the current account balance at the time of actual division of the account, but will look at the account balance as of the valuation date.

VALUATION DATE PROBLEMS IN QDROS

Unfortunately, an issue which often makes the QDRO process more difficult is the lack of a valuation date in the parties’ Marital Settlement Agreement (“MSA”).  A missing valuation date can lead to litigation at a later date.  Your MSA should always state the date as of which the benefits are to be divided, or reference a date which is known and agreed to by the parties, i.e. “Wife is awarded 50% of the account balance as of the date of separation” or “Husband is awarded 50% of the account as of December 15, 2012.”  Absent a specified date, one party may argue for the date of separation to be used, while another party may argue that the date of dissolution should be used.  As can be imagined, the value of retirement benefits could vary greatly depending on the valuation date chosen, particularly since the date of separation and the date of dissolution can be more than a year apart.  Other potential valuation dates are the date that a divorce petition is filed, the date the MSA was signed.

Typically, in California, the parties’ date of separation is viewed as the date that the community interest in the asset stops accruing. [In re Marriage of Bergman, 168 Cal. App. 3d 742 (1985)]  However, other states view community property differently.  For example, in Arizona, the accrual of community property typically terminates upon the service of the divorce petition on the other party; in Nevada, community property usually terminates upon the date of divorce.

Valuation dates are also an issue because often with QDROs for defined contribution plans, gains and losses are included in the alternate payee’s share from the valuation date to the date that the plan administrator actually segregates the account.  Therefore, the further back the valuation date is from the date of account segregation, the greater the potential change in value of the alternate payee’s benefits.

If the parties are awarding the non-employee spouse a flat dollar amount, then the valuation date should be the date of account segregation by the plan administrator and the QDRO should specify that the parties do not intend for any gains or losses to be included in the alternate payee’s award.

Provisions should also be made in the event that the retirement plan only allows certain valuation dates.  For example, some plans only allow valuation dates that are the last day of a month, or have valuation dates that can only be days that the New York Stock Exchange allows trading (i.e. excludes weekends or holidays).  Ideally, the MSA should provide a valuation date and then also state “or the nearest valuation date under the Plan”.

The best practice is to ensure that the MSA clearly states the valuation date for dividing retirement assets and also allows for variations due to the valuation dates allowed under the terms of the retirement plan.

QUESTIONS ABOUT VALUATION DATES IN QDROS?

If you have questions about valuation dates in QDROs or if you would like to assistance with your MSA language or drafting your QDRO, please call QDRO Helper at 619-786-QDRO (619-786-7376) or email us at info@qdrohelper.com.

 

DISCLAIMER: ADVERSTISEMENT.  Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

Waiver QDRO: Do I Need a QDRO if my Spouse Waives all Retirement Benefits?

waiver QDROWHAT IS A WAIVER? WHAT IS A QDRO?

Sometimes during divorce, the parties will agree that one spouse will forever waive his/her interest in the other spouse’s retirement plan.  Often this is done as part of an equalization of property, other times the parties simply agree that they will each keep their own retirement plan.  This “waiver” of one party’s community property interest in the other party’s retirement benefits is usually written out in the parties’ marital settlement agreement. A “waiver QDRO” can also be prepared to waive one party’s interest in retirement benefits.

The division of retirement benefits due to divorce is normally accomplished via a Qualified Domestic Relations Order or “QDRO.”  A QDRO is a particular type of court order that divides retirement plan benefits between parties due to marital dissolution or legal separation.  A QDRO creates and/or recognizes an employee’s former spouse’s right to receive all, none, or a portion of the benefits payable with respect to an employee under a retirement plan.  QDROs are made pursuant to state domestic relations laws (such as California community property laws) and under federal law, such as the Internal Revenue Code and The Employee Retirement Income Security Act (ERISA).

DO I NEED A WAIVER QDRO?

Some retirement plans will require a QDRO even when the parties’ judgment or settlement agreement clearly states that the non-employee spouse has waived his/her right to any benefits.  If the terms of the retirement plan require a QDRO, then the employee will not be able to retire and begin receiving payments until a QDRO is received by the plan.  In that situation, a waiver QDRO should be prepared as soon as possible.

Many retirement plans do not require a QDRO in the case of a waiver of benefits; however, it is still the best practice to ensure that a waiver QDRO is filed with the court and submitted to the plan administrator.  Filing a QDRO as close as possible to the date of dissolution will ensure that a waiver of benefits will be valid and will not become problematic at a later date.

One example of how a waiver in a divorce settlement agreement is not always effective is from the Supreme Court case of Kennedy v. Dupont, 129 S.Ct. 865 (1/26/2009).  In that case, the parties had a valid divorce decree which stated that the Wife would not receive any interest in the Husband’s retirement benefits.  However, many years prior to the divorce, Husband had completed a beneficiary designation with the plan administrator naming Wife as his beneficiary in the event of death.  After the divorce, Husband never changed his beneficiary form to remove Wife.  When Husband died, the plan paid his benefits to his former spouse, instead of his daughter.  The retirement plan administrator followed the plan procedures and paid benefits to the named beneficiary, regardless of the divorce decree which included a waiver of the benefits.  The Supreme Court held that the retirement plan administrator acted correctly, and that the parties’ divorce decree was not sufficient to serve as a QDRO; therefore, the plan document was controlling on what would happen to the deceased employee’s benefits.  If the parties had prepared a QDRO which waived Wife’s right to any and all retirement benefits, then the plan would have paid the benefits to the employee’s daughter, instead of his former spouse.

Most divorce decrees or settlement agreements incorporated into judgments do not have the language required to qualify as a QDRO.  To be recognized as a QDRO, an order must be: A judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law (including community property law) and that relates to the provision of child support, alimony payments, or marital property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant.  Further, in order to be a QDRO, the court order must contain QDROs must contain the name and last known mailing address of the participant and each alternate payee; the name of each plan to which the order applies; the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee, and the number of payments or time period to which the order applies.  There are additional provisions that a court order must not contain in order to qualify as a QDRO, such as:

  • The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan;
  • The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value);
  • The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO, and;
  • The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse.

If your divorce decree does not have all of the necessary provisions required to qualify as a QDRO, it is best to have a waiver QDRO prepared to ensure that the spouse’s waiver is truly valid pursuant to the retirement plan’s procedures.

BENEFICIARY DESIGNATIONS

It is critical that, after a divorce, the plan participant fills out a new beneficiary designation with each retirement plan in which he/she participates.  Even if a Marital Settlement Agreement contains a waiver of all retirement benefits, the plan may still pay benefits to the participant’s former spouse if the former spouse was still listed as the beneficiary in the plan’s records.  The recent case of Andochick v. Byrd in the Fourth Circuit Court of Appeals is one example of the problems that are created with inconsistent beneficiary designations and divorce judgment and settlement agreement language.

QUESTIONS ABOUT A WAIVER QDRO?

If you have questions about waiver QDROs, dividing retirement benefits due to divorce, or if you would like to get started on your QDRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376).  Alternatively, you can email info@qdrohelper.com and request a new client package.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

KCERA DROs: Dividing Kern County Employees’ Retirement Association Benefits in Divorce

QDRO Helper: Bakersfield QDRO Attorneys - Kern County QDRO

KCERA & DIVORCE – GENERAL INFORMATION

Membership in the Kern County Employees’ Retirement Association (KCERA) is automatic for any employee who is appointed to a permanent position that meets certain hourly requirements.  Membership in KCERA begins on the first day of the payroll period following the employee’s date of hire, and every member is either a safety member or general member.  KCERA is a defined benefit plan that is administered by the Board of Retirement.  Like other types of assets acquired during marriage, KCERA benefits are subject to division during divorce.  The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO.   Kern County also offers the Kern County 457 Deferred Compensation Plan to its employees; that plan is not addressed in this article, but the attorneys at QDRO Helper can also assist with the division of those deferred compensation plan benefits.

KCERA JOINDER REQUIREMENT & EFFECT OF JOINDER

Joinder is a legal process that names a third-party claimant to the parties’ divorce case.  In order for KCERA to respond to a DRO, pursuant to California Family Code §2060(b), a joinder must be filed and served on KCERA.  Joinder is the first step in obtaining an Order to divide Kern County Employees’ Retirement Association benefits.    Once the joinder is served on KCERA, KCERA will place a hold on the member’s account.  No funds will be paid out from the member’s KCERA account until the plan receives a DRO or court order that specifies the division of the benefits.  Until receipt of the joinder and DRO, the member will not be able to retire and begin receiving payments.  Further, if the parties divorce after retirement, as soon as KCERA is served with the joinder documents, KCERA will reduce benefit payments to the member by 50% until a court-approved DRO is received.  At that time, if the member was underpaid, the member will issue all underpaid benefits to the member.  Your divorce attorney may have already filed a joinder for you, if not, QDRO Helper offers joinder services for a reasonable $200 Flat Fee.

OBTAINING INFORMATION ABOUT KCERA BENEFITS

Individual retirement records are confidential; however, they can be disclosed to the member or to another person authorized by the member in writing to receive the records.  The records can also be released with the appropriate court order or subpoena.  At the member’s request, KCERA can provide an estimate of the community property share of the member’s account.  A request for that information should include the member’s name and social security number, the nonmember’s name, social security number and date of birth, the parties’ dates of marriage and separation.  KCERA can also provide information about the member’s date of hire and date of membership in KCERA.

DIVISION OF BENEFITS

Usually, the nonmember spouse is awarded one-half of the community property interest in the retirement benefits pursuant to the formula described in Marriage of Judd (1977), 68 Cal.App.3d 515, 522, also known as the Time Rule Formula.  You can read more about the Time Rule Formula here.

KCERA, unlike some other county government plans, does not currently offer the option to create a separate account on behalf of the nonmember spouse.  Instead, the nonmember spouse will receive a portion of each payment made to the member.   Since each payment to the nonmember spouse is only made when a payment is made to the member, a lifetime benefit to the nonmember spouse is not guaranteed and should not be assumed.

EFFECT OF NONMEMBER’S DEATH & MEMBER’S DEATH

If the nonmember spouse dies before payments commence under the DRO, the payments that would have been made to the nonmember spouse will instead be paid to the nonmember spouse’s estate.  If the member dies before retirement, the nonmember spouse will receive a pro-rata share of any survivor’s benefits which the plan is obligated to pay.

QUESTIONS ABOUT KCERA DROs?

If you have questions about the division of KCERA benefits, or if you would like to get started on your KCERA Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  You can also request a new client package by email by clicking here.  We proudly serve clients who live in Bakersfield and throughout California – no in-office appointments required.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

 

What is the Brown Rule? What is the Time Rule Formula?

Time Rule Formula Brown FormulaBackground on the Brown Rule & the Time Rule Formula

A California court case from 1976 established that non-vested retirement benefits were community property, subject to division upon dissolution of marriage.  This case was In Re Marriage of Brown (1976) 15 Cal. 3rd 838.  After the Brown case, courts started utilizing a formula to divide retirement benefits – over time, this formula became known as the Time Rule Formula or the Brown Rule.  The court in a dissolution of marriage action is authorized to divide community property equally, and must utilize a formula that will accomplish an equal division.

What is the Time Rule Formula?

When the Time Rule Formula is utilized, the community property interest in retirement benefits is determined by a fraction whose numerator is the employee’s length of service from the date of marriage through the date of separation, and whose denominator is the employee’s total length of service at retirement.

As a simplified example, if a spouse was married for 10 years during which time she worked for the same employer and accrued retirement benefits, but then retired after 20 total years of service with said employer, the community property interest in the retirement benefits would be 10/20 or 50%.  The remaining 50% would be the employee’s separate property.  Further, the community interest is divided equally between the parties, so the non-employee spouse would receive 25% of the total retirement benefits, and the employee spouse would receive 75% of the total retirement benefits.

Are the Brown Rule and Time Rule Formula Really the Same Thing?

Although many divorce attorneys use the terms “Brown Rule” and “Time Rule Formula” interchangeably, they are not actually the same thing.  A 2007 case, In Re Marriage of Gray, established that the term “Brown Formula” was not always accepted as having the same meaning as the “Time Rule.”  Instead, the court held that the basic principles from the Brown case were that i) nonvested pension rights are community property subject to division and ii) that the court may achieve division either by cashing out the nonemployee spouse through the reduction of the rights to the present value or by retaining jurisdiction to achieve the division later as the pension benefits accrue and are subject to payment.  The Gray court determined that the Brown case, on its face, did not actually establish or promote what came to be known as the Time Rule formula, or any other specific formula, for dividing pensions in divorce.  If it is the parties’ intention to utilize the formula described above, the Martial Settlement Agreement should state that the retirement benefits will be divided pursuant to the “Time Rule” not the “Brown formula.”

When Should the Time Rule Formula be Used?

The Time Rule Formula should only be used for defined benefit plans where the amount of retirement benefits is substantially related to the number of years of service.  If the amount of benefits is related to another factor, a different formula may be needed.  It should also be noted that the Time Rule is inappropriate for defined contribution plans, like 401(k) plans, because the benefits paid out at retirement are directly related to the contributions made and are not substantially related to the number of years of service.  Further, the contributions made during the marriage are likely not equal to the contributions made before or after marriage.

Questions About Your California QDRO or the Time Rule or Brown Formula?

If you have questions about the division of retirement benefits in your divorce, or if you would like to get started on your QDRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376).  Alternatively, you can email info@qdrohelper.com and request a new client package.  We can also assist with Marital Settlement Agreement (MSA) language if needed.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

VCERA DROs: Dividing Ventura County Employees’ Retirement Association Benefits in Divorce

QDRO Helper - Ventura County QDRO AttorneyVCERA & DIVORCE – GENERAL INFORMATION

Employees of Ventura County are members of the Ventura County Employees’ Retirement Association (VCERA).  Like other money or assets acquired during marriage, VCERA benefits are subject to division during divorce.  The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO.

VCERA JOINDER REQUIREMENT

Joinder is a legal process that names a third-party claimant to the parties’ divorce case.  In order for VCERA to respond to a DRO, a joinder must be filed and served on the plan.  Joinder is the first step in obtaining an Order to divide Ventura County Employees’ Retirement Association benefits.  Your divorce attorney may have already filed a joinder for you; however, if needed, QDRO Helper also offers joinder services for a $200 Flat Fee.

DIVISION OF BENEFITS

Typically, the nonmember spouse is awarded one-half of the community property interest in the retirement benefits.  There are two basic methods of division: i) a segregation of account method, where a separate account will be established by VCERA on behalf of the nonmember and ii) a shared method, where the nonmember spouse receives a portion of each payment made to the member.  The shared method is the only option that can be utilized if the member has already retired.  If the member is not retired, either the segregation method or shared method can be used.  Under the segregation method, the nonmember has a variety of distribution options:

  1. he/she may request a refund of contributions and interest (which can be “rolled over” into another qualifying plan), or
  2. he/she can commence receipt of a monthly retirement benefit if eligible, or
  3. he/she may maintain the account by electing a deferred retirement until such time as he/she elects either a refund of contributions and interest or becomes eligible to receive a monthly retirement benefit.

If a member is not vested, then the nonmember spouse can only utilize option 1 above.  When the nonmember is paid a refund, the member will have five years to sign a contract that will allow the member to redeposit all contributions withdrawn, plus interest, in order to regain the service credit awarded and paid out to the nonmember spouse. The contract may be satisfied with payroll deductions over the course of five consecutive years (one hundred and thirty consecutive biweekly payments).

NONMEMBER’S DEATH

The nonmember spouse has the right to name a beneficiary, or beneficiaries, for the nonmember’s VCERA benefits.  If the nonmember dies before the effective date of retirement, his/her accumulated contributions shall be paid to his/her designated beneficiary.

If the nonmember dies after the effective date of his/her retirement, if the total retirement allowance income received by the nonmember during his/her lifetime was less than his/her accumulated contributions, his/her designated beneficiary shall be paid in one lump-sum the difference between the total contributions and the total retirement allowance income.

QUESTIONS ABOUT VCERA DROs?

If you have questions about the division of VCERA benefits, or if you would like to get started on your Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376.  We proudly serve clients throughout California – no in-office appointments required.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

San Luis Obispo County Pension Trust & Divorce

QDRO Helper - San Luis ObispoEvery permanent employee of San Luis Obispo County is required to become a member of the San Luis Obispo County Pension Trust.  Each member contributes a percentage of his/her salary to the Pension Trust; members can also make voluntary contributions.  The employer also contributes a percentage of each member’s salary to the Pension Trust.  Contributions made to the Pension Trust during marriage are considered community property and are subject to division under California law due to divorce or legal separation.  The court order used to divide these retirement benefits is called a Domestic Relations Order or DRO.  Under the DRO, the employee is called the “member” and the non-employee former spouse is called the “Alternate Payee”.

JOINDER REQUIREMENT FOR SLO COUNTY PENSION TRUST

The San Luis Obispo County Pension Trust must be joined before a DRO can be implemented.  Joinder is a legal process that names a third-party claimant to a divorce case; the Pension Trust is a third-party claimant to any dissolution case which involves San Luis Obispo County Pension Trust benefits.  The joinder will put the Plan on notice of the pending dissolution action and forthcoming DRO, and will give the court jurisdiction over the SLO County Pension Trust.  Often divorce attorneys file the joinder as part of the dissolution proceedings.  However, if needed, QDRO Helper can file the necessary joinder documents for you for an additional flat fee of $200.

METHODS OF DIVISION

There are two basic methods utilized for dividing San Luis Obispo County Pension Trust benefits for active or reserve members.  There is only one option for dividing the benefits of a member who has already retired.  The methods of division are described below.

Method 1: Payout of the Alternate Payee’s Share at the Time the Member Retires or Dies

Under the first method of division, the Alternate Payee will receive a portion of each payment made to the member, or upon the member’s death, based upon his/her community property interest.  Payments will only commence to the Alternate Payee either 1) upon the Member’s actual retirement or 2) upon the death of the Member.  Typically, the Alternate Payee’s share is determined using the “Time Rule” formula, i.e. the Alternate Payee will receive 50% of the Member’s monthly retirement allowance multiplied by a fraction where the numerator is the Pension Trust Service Credit attributable to the Member’s employment during the marriage (from date of marriage through the date of separation), the denominator is the total of the Member’s Pension Trust Service Credit at the Effective Date of Retirement.

Under this method of division, the DRO may order the Member to elect a payment option that provides a survivor benefit annuity to the former spouse.  The Optional Settlement that is to be elected by the Member must be specifically named in the DRO.  There are 4 optional settlements that will allow for benefits to be paid to the former spouse upon Member’s death, aptly named Optional Settlement 1, Optional Settlement 2, Optional Settlement 3, and Optional Settlement 4.  If the Member chooses and “Unmodified Retirement”, there are no survivor benefits and all payments to the Alternate Payee will cease upon the Member’s death.  More information on the options available can be obtained by contacting the San Luis Obispo County Pension Trust.

Under method 1, if the Member ceases working for SLO County and elects to receive a refund of his/her contributions (which will not include contributions made by the employer), then the Alternate Payee would receive his/her share of the refunded contributions based on the formula specified in the DRO.

Method 2: Separate Account Established for the Alternate Payee

The second method of division for active members order the Plan to split the member’s service credit and contributions, and to establish a separate account for the Alternate Payee.  This allows the Alternate Payee to decide on his/her own retirement option (either “Unmodified” or an “Optional Settlement” that names a beneficiary) and to have more control over when payments to the Alternate Payee will commence.  Even if the Member is still working, the Alternate Payee can apply for and receive a refund of his/her share of the accumulated contributions available for refund.  The Alternate Payee could can “retire” and begin receiving monthly annuity payments once the Member’s interest in the plan is vested and both the Member and Alternate Payee are 50 years old.  The disadvantage of this method is that the Alternate Payee will not share in any increased value of the Member’s retirement allowance due to increases in compensation before retirement.  The “compensation” factor of the annuity calculation is frozen as of the parties’ date of separation under Method 2.  The Alternate Payee typically will be awarded 50% of the contributions made during the marriage – from the date of marriage through the date of separation.

Method 3: For Retired Members

Similar to Option 1 above, the Alternate Payee’s share will be calculated using the “Time Rule” and the Plan will make payments to the Alternate Payee until the retired Member’s death.  Benefits will only be paid after the Member’s death if the Member chose an Optional Settlement at retirement and named the Alternate Payee as the beneficiary of the Optional Settlement.  The option selected at retirement cannot be changed.

QUESTIONS ABOUT DIVIDING SAN LUIS OBISPO COUNTY PENSION TRUST BENEFITS?

If you have questions about dividing Pension Trust benefits or if you would like to get started on your DRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376).  Alternatively, you can email info@qdrohelper.com and request a new client package for a SLO County Pension Trust DRO.  We proudly serve clients throughout California – no in-office appointments are needed.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

Gillmore Rights and Your California QDRO

California QDRO Gillmore Rights QDRO HelperWHAT ARE GILLMORE RIGHTS?

Often an employee wants to continue working past her earliest retirement age.  If the employee is divorced and her former spouse wants to start receiving benefit payments based on his community interest in the retirement plan, Gillmore rights allow him to start receiving his share of benefits before his former spouse actually retires.  Specifically, these rights give an non-employee former spouse the ability to receive his/her community property share of the employee former spouse’s benefits at the earliest date on which the employee would be eligible to retire, regardless of whether the employee actually retires at that time.  This option to commence benefits at the earliest retirement date is governed by federal law 29 USC §1056(d)(3)(E)(i); Internal Revenue Code §414(p)(4);  and a California court case Marriage of Gillmore (1981) 29 C3d 418.  These rights get their name from the Marriage of Gillmore case where the court determined that an employee who continues working past the date of retirement eligibility can be ordered to pay his/her former spouse his/her community share of benefits.

WHAT IS A GILLMORE ELECTION?

A “Gillmore Election” occurs when a non-employee spouse makes a motion in court to demand payment of benefits from the plan or the participant.  (The process is started by filing form FL-300.)  However, if a Qualified Domestic Relations Order is already in place granting the non-employee spouse a separate interest in the plan, the non-employee former spouse can simply contact the plan and commence receipt of benefits.

OTHER CONSIDERATIONS REGARDING GILLMORE RIGHTS

A Gillmore election is irrevocable.  Therefore, if the non-employee former spouse commences benefits before the employee actually retires, the non-employee will not be entitled to share in any future benefit increases due to the employee’s continued service, increased age, or increased salary.  The non-employee spouse will still be entitled to cost-of-living adjustments.

It is possible for parties to waive Gillmore rights explicitly as part of the divorce proceedings.  However, parties should be aware that if they choose to divide retirement benefits by the Time Rule formula instead of a separation of account method, this can be construed as an implicit waiver of Gillmore rights, unless the QDRO states otherwise.  Many plans, such as CalPERS, CalSTRS, and government plans require language in their Domestic Relations Orders stating that payments to the non-employee will not commence until the member actually retires and begins receiving payments.  This is with regard to the plan and payments made directly by the plan only; a non-employee spouse could still seek court action against the former spouse to receive payments directly from the still-working employee.

QUESTIONS ABOUT YOUR CALIFORNIA QDRO OR GILLMORE RIGHTS?

If you have questions about Gillmore rights, dividing retirement benefits due to divorce, or if you would like to get started on your QDRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376).  Alternatively, you can email info@qdrohelper.com and request a new client package.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

LACERS Benefits & Divorce: Los Angeles City Employees Retirement System

LACERS DRO QDRO HelperIf a member earns Los Angeles City Employees Retirement System (LACERS) benefits during marriage, those benefits are community property and are subject to division due to divorce, legal separation, or dissolution of a registered domestic partnership.

JOINDER REQUIREMENT

If the dissolution or separation matter is filed in a California court, then LACERS must be joined.  Joinder is a legal process that names a third-party claimant to a divorce case.  The joinder will put LACERS on notice of the pending dissolution action and forthcoming DRO, and will give the court jurisdiction over LACERS.  If needed, QDRO Helper can file the necessary LACERS joinder documents for you for an additional flat fee of $200.

NONMEMBER SPOUSE NOTICE OF INTEREST

In addition to the Joinder, the nonmember should also notify LACERS in writing that he/she is claiming his/her community property interest if the member’s benefits.  The letter should include the parties’ date of marriage and date of separation, as well as the member’s name and social security number.  This letter can be mailed to LACERS at 360 East Second Street, 2nd Floor, Los Angeles, CA 90012-4207.  However, please note that the nonmember spouse will not be able to receive benefits until a domestic relations order is drafted, signed by the parties, filed at court, and sent to LACERS for implementation.

HOW BENEFITS ARE DIVIDED: IN-KIND DIVISION OR SEPARATE ACCOUNT

In-Kind Division: 

For the “in-kind” division, the nonmember spouse is typically awarded one half of the community interest in the LACERS benefits.  The community property interest is determined by the “time rule formula” – i.e. a fractional interest where the member’s service from the date of marriage through the date of separation (or “marital service”) is divided by the member’s total service.  The Order may also specify that any service time purchased during the marriage be considered marital service.  Although dividing the community interest 50/50 is the most common method of division, the nonmember could receive any percentage of the benefits awarded in the parties’ separation agreement or divorce judgment.

The nonmember may take his/her distribution “in-kind” which means that the nonmember will be paid a portion of the member’s pension for the member’s lifetime (and, if applicable, for the lifetime of the member’s surviving spouse).  If the nonmember outlives the member (and the member’s surviving spouse) the payments to nonmember will cease.  If the nonmember dies before the member (and the member’s surviving spouse), depending on the domestic relations order, the share would pass either to the nonmember’s beneficiary or heirs, or could revert to the member.

Alternatively, after the court order is filed, the nonmember spouse may elect to convert his/her “in-kind” interest to a life annuity based on the nonmember’s lifetime.  This election will alleviate the risk of losing all benefits if the member (and/or the member’s then-current spouse) predeceases the nonmember former spouse.  Upon the nonmember’s death, all benefit payments from LACERS stop.

Separate Accounts

If the DRO provides for the establishment of separate accounts, the nonmember has two options for distribution:  1) the nonmember can receive a refund of contributions and will relinquish any right to monthly benefits in the future or 2) the nonmember can receive a separate account allowance, payable for his/her lifetime.  Note, that if the nonmember elects option 2, the allowance will be calculated based upon a formula using the member’s compensation at the parties’ date of separation, not the time that the allowance becomes payable. Another important restriction on the Separate Account method is that if the member never becomes eligible for a service retirement (due to death or disability retirement), then the nonmember cannot receive a separate account allowance (i.e. monthly payments), instead the only form of payment will be a refund of contributions.

It should be noted that a “refund of contributions” is a refund only of the contributions that the member paid in from the member’s salary, plus the interest on those contributions. This may not reflect the true value of the member’s benefits since a refund of contributions does not include any compensation paid for by the City.

It should also be noted that if the separate account method is used and if the nonmember spouse takes a refund of contributions, then the member can repay LACERS to restore his/her service credit under the Plan.

How Do I Decide Which Method to Choose?

There are pros and cons to both methods of division, and the best option for you will depend on your unique circumstances. The separate account method uses the member’s compensation at the date of separation while the in-kind division is based on the member’s compensation at the time of retirement. Since the member’s compensation at retirement is likely to be more than at the time of separation, the amount of the monthly benefit the nonmember receives with the separate account order is usually less than what he/she would receive with a typical in-kind division. However, the nonmember must wait for the member to retire before the nonmember can receive benefits under the in-kind division. The separate account allowance is paid for the nonmember’s lifetime, and will not be affected by the member’s death, while the in-kind division may or may not be payable, in this manner, depending upon whether the nonmember elects to take a life annuity at retirement.

One distinct advantage of the separate account method is that if the member is eligible to retire but is still working, the nonmember can start to get benefits before the member retires, assuming that all service retirement eligibility requirements have been met. This can be advantageous when the nonmember is significantly older than the member. If the nonmember can claim the separate account allowance now, the final compensation payable to the nonmember spouse over his/her lifetime may be similar what an in-kind order would provide. However, a distinct drawback to the separate account is that if the member never becomes eligible for a service retirement, due to death or disability, the nonmember can only receive a refund of contributions and interest paid in by the member, which would result in a loss of any employer contributions to the plan.

If you are unsure what option to choose, you should know that once a separate account is established by the Plan pursuant to the court order, the nonmember no longer has any right to an in-kind division. However, if an in-kind division is ordered by the court, and the court retains jurisdiction, then the order can be modified to establish a separate account in lieu of an in-kind division as long as the modification occurs prior to the member’s retirement.

The information provided here is only a basic summary.  You should call LACERS at (213) 485-4917 if you have questions about your options.

NEED HELP WITH A LACERS COURT ORDER?

If you would like to get started on your LACERS DRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376).  Alternatively, you can email info@qdrohelper.com and request a new client package for a LACERS court order.  We proudly serve clients and attorneys throughout California – no in-office appointments are needed.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual

Dividing IRAs in Divorce: Do You Need a QDRO?

Written October 25th, 2012
Categories: General QDRO Info, IRA

What is an IRA?

IRAs are Individual Retirement Accounts which are governed by Internal Revenue Code §408.  Usually the account owner is the person in control of the IRA, and the account owner is considered the “plan administrator.”  The most common type of IRA is the traditional IRA; however, there are also simplified employee pension (SEP) IRAs, savings incentive match plan for employees (SIMPLE) IRAs, education IRAs, and Roth IRAs.  Contributions made to an IRA during marriage (from the date of marriage through the date of separation) are considered community property in California and are subject to division due to dissolution of marriage.

Do You Need a QDRO to Divide an IRA?

Usually you do not need a QDRO to divide an IRA, but each IRA is different and it is best to call the company who manages the IRA to see if they require a QDRO before the account is divided.  Typically an IRA may be divided by a “divorce or separation instrument” as defined in Internal Revenue Code (IRC) §71(b)(2)(A) and pursuant to IRC §408(d)(6).  The following are considered “divorce or separation instruments”:

  • A decree of divorce or separate maintenance or a written instrument incident to such decreeIRA and divorce
  • A written separation agreement
  • A decree requiring a spouse to make payments for the support or maintenance of the other spouse

In order to utilize a “divorce or separation instrument” to divide and IRA, you should be sure that your judgment or settlement agreement includes language that is sufficient to divide the IRA, provides a clear method of division, provides a valuation date as of which the IRA is to be divided, and address gains and losses on the non-owner spouse’s share.

Rather than a judgment or filed settlement agreement, some financial institutions will require a “Letter of Instruction,” signed by the IRA owner, directing them to divide the account.  Occasionally, a financial institution will require a “QDRO” before dividing the account on behalf of the non-owner spouse.  Although IRAs are not governed by ERISA, and are exempt from ERISA’s QDRO provisions, it is usually best to simply provide the financial institution with whatever documentation they require in order to divide the account, whether it is a judgment, settlement agreement, letter of instruction or QDRO.

To divide an IRA you do not need obtain a joinder, as you may need to do with other types of retirement benefits, because the person who legally owns and controls the account is the spouse who is a party to the divorce action, not a third party plan administrator.

Tax Issues with IRAs and Divorce

To be tax free, the IRA transfer to the other spouse must made be pursuant to a court order.  Further, money should be transferred directly from one IRA to another IRA or plan via either i) direct rollover distribution or ii) trustee-to-trustee transfer.  Failure to utilize these methods of transfer can result in a mandatory 20% IRS tax withholding.  If money is first distributed to an individual and is then rolled over within 60 days of distribution to an IRA or other plan, tax-deferred treatment is possible, but will only apply to 80% of the distribution unless the individual can contribute funds to make up for the 20% that was withheld.  Funds received directly by an individual who is not yet 59 ½ will be subject to a 10% early withdrawal penalty; however, this early withdrawal penalty can sometimes be waived by utilizing a QDRO. [IRC §72(t)]

Need Help Dividing an IRA Due to Divorce?

Call QDRO Helper today at 619-786-7376 if you need help dividing and IRA due to divorce.  We can prepare a QDRO if one is required.  We also can help draft language for your divorce decree or settlement agreement that will allow the IRA to be divided.  You can also email info@qdrohelper.com for more information and for our Fee Schedule.  We are happy to assist clients throughout California – no in-office appointments needed.

DISCLAIMER: ADVERTISEMENT. Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and is not legal advice and does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. The information provided is intended to comply with Rule 1-400 of the California Rules of Professional Conduct. Any links in this website are included only to help you locate other Internet resources that may be of interest to you; QDRO Helper is not associated with any such links. The transmission and receipt of information contained on this website via the Internet or e-mail or in any other manner does not constitute or create an attorney-client relationship, and you should not act on the information contained herein without obtaining legal counsel. QDRO Helper has a strict policy of entering into attorney-client relationships with its clients only though the execution of a written fee agreement acknowledged by QDRO Helper. As such, you should not send QDRO Helper any confidential information in response to this web page until such a relationship is established and expressly acknowledged by QDRO Helper.

LACERA & Divorce: Dividing Los Angeles County Employees Retirement Association Benefits

LACERA DRO

Permanent employees of Los Angeles County or outside Districts who work three-quarter time or more are members of the Los Angeles County Employees Retirement Association (LACERA).  Any LACERA pension benefits that are accumulated during marriage are subject to division due to dissolution of marriage or termination of a registered domestic partnership.  Orders dividing retirement benefits are often called Qualified Domestic Relations Orders, or QDROs; however, LACERA is exempt from the provisions of the Employee Retirement Income Security Act (ERISA), and orders dividing LACERA benefits are called Domestic Relations Order or DROs.

REQUESTING INFORMATION ABOUT LACERA BENEFITS

LACERA is a defined benefit plan under which a member accumulates service credit.  Each LACERA member receives an Annual Benefit Statement which details the member’s accumulated service credit, contributions, and credited interest.  Members can also request information about their accounts by sending a written request to LACERA.  A person other than the Member can request the Member’s account information by either 1) providing written authorization, signed and dated by the Member within the 30 days prior to the information request or which is specifically valid for a longer time period; or 2) submitting a subpoena and Notice to Consumer, along with a $15 check for witness fees to the LACERA.

JOINDER REQUIRED FOR LACERA

LACERA must be joined before a DRO can be implemented.  Joinder is a legal process that names a third-party claimant to a divorce case; LACERA is a third-party claimant to any dissolution case which involves LACERA benefits.  The joinder will put LACERA on notice of the pending dissolution action and forthcoming DRO, and will give the court jurisdiction over LACERA.  A joinder will also place a hold on a active member’s account which will remain in place until the member retires.  The hold will prevent payment of a member’s benefit or a refund of accumulated contributions and interest until a DRO is received.  If needed, QDRO Helper can file the necessary joinder documents for you for an additional flat fee of $200.

LACERA RETIREMENT OPTIONS / OPTIONAL RETIREMENT ALLOWANCES

Various alternatives to the Unmodified Retirement Allowance are available under the County Employees Retirement Law of 1937 (CERL).  The different options allow for variations in determining how retirement and survivor benefits are paid, and who can be designated as a beneficiary.  Options 1-4 are summarized below:

• Option 1 (Government Code § 31761): If the member dies prior to receiving the contributions he or she paid into the retirement fund, Option 1 provides a single lump-sum payment (remaining balance of member’s accumulated contributions) to any named beneficiary. It does not provide a monthly survivor allowance. (Not available to Plan E members.)

• Option 2 (Government Code § 31762): Provides one named beneficiary with 100 percent of the member’s benefit, calculated on the date of death.

• Option 3 (Government Code § 31763): Provides one named beneficiary with 50 percent of the member’s benefit, calculated on the date of death.

• Option 4 (Government Code § 31764): Provides a customized lifetime benefit to one or more named beneficiaries via either a set monthly income or a fixed percentage of the member’s monthly allowance. The cost of customizing a benefit under Option 4 may be shared between the retired member and the non-member or the court may require one party to bear the cost.

Many divorcing members opt for Option 4 because it allows a member to name multiple beneficiaries amongst whom survivor benefits can be distributed – this can allow for survivor benefits to be paid to both a current spouse and the member’s former spouse.

TIME RULE FORMULA FOR DIVIDING LACERA BENEFITS

The most common method of dividing LACERA benefits is known as the Time Rule Formula.  This formula will provide that the non-member spouse’s share of the LACERA benefits is 50% times a fraction where the numerator is the number of months of LACERA service from the date of marriage to the date of separation, and the denominator is the total months of LACERA service accrued at the member’s retirement.

The Time Rule Formula will also apply if a member terminates employment and elects to receive a refund of accumulated contributions; providing the non-member spouse with a community property share of such refund of contributions.

QUESTIONS ABOUT DIVIDING LACERA BENEFITS?

If you have questions about dividing LACERA benefits or if you would like to get started on your DRO today, please call QDRO Helper at 619-786-QDRO (619-786-7376).  Alternatively, you can email info@qdrohelper.com and request a new client package for a LACERA DRO.  We are happy to assist clients throughout California – no in office appointments needed.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

ICERS DROs: Dividing Imperial County Employees’ Retirement System Benefits During Divorce

ICERS & DICERS QDRO HelperIVORCE – GENERAL INFORMATION

Employees of Imperial County are members of the Imperial County Employees’ Retirement System (ICERS).  The retirement system is not a department of Imperial County government; instead it is a separate legal entity managed by the Board of Retirement which is responsible for the management of investments and benefits for ICERS members.  There are two types of ICERS membership: 1) Safety Members (employees in law enforcement, fire suppression and certain probation officers) or 2) General Members (all non-safety members).  Like other assets acquired during marriage, ICERS benefits are subject to division during divorce.  The division of these benefits is accomplished by a special court order called a Domestic Relations Order or DRO.  The law governing ICERS is Cal.Gov.Code §31450 et seq.

JOINDER REQUIREMENT

Joinder is a legal process that names a third-party claimant to the parties’ divorce case.  ICERS requires a joinder to be filed and served on the plan before a Domestic Relations Order can be approved and implemented.  Joinder is the first step in obtaining an Order to divide ICERS benefits.  Your family law attorney may have obtained a joinder; however, QDRO Helper also offers joinder services for a $200 Flat Fee.

REQUESTS FOR INFORMATION

The contents of a member’s file are confidential and can only be provided to the member or the member’s authorized representative.  In order for the nonmember to receive information about the Member’s account, ICERS must be joined to the action, and either i) a subpoena duces tecum must be served or ii) the member must provide ICERS with a written authorization to release information to the nonmember or the nonmember’s attorney.  ICERS has a policy for resisting subpoenas for information, so it is often best to obtain a court order against the member requiring him/her to execute the necessary written authorization.

DISSOLUTION OF DOMESTIC PARTNERSHIP & ICERS BENEFITS

ICERS benefits can be divided due to dissolution or termination of a registered domestic partnership, under The California Domestic Partner Rights and Responsibilities Act.  However, the federal government does not currently recognize domestic partners as spouses for tax purposes, which causes unique problems for domestic partners dividing a retirement benefits.  Domestic partners should contact both a tax advisor and ICERS regarding the unique challenges in dividing these benefits due to the dissolution of a domestic partnership.

NONMEMBER’S DEATH

The nonmember spouse has the right to name a beneficiary, or beneficiaries, for the nonmember’s share of the ICERS benefits.  If the DRO is prepared prior to the member’s retirement, then the nonmember’s beneficiary will receive any portion of the nonmember’s ICERS interest which is payable upon the nonmember’s death.  If the DRO is prepared and implemented after the member’s retirement, then the nonmember’s beneficiary will continue to receive the nonmember’s monthly payments until the death of the member.

REFUND OF RETIREMENT CONTRIBUTIONS

If a member is not retired at the time of drafting the DRO and does not have five years of accumulated service credit as of the parties’ date of separation, then the nonmember spouse will receive a refund of his/her share of the member’s accumulated retirement contributions and any interest thereon.

QUESTIONS ABOUT ICERS DROs?

If you have questions about the division of ICERS benefits due to your California dissolution of marriage or domestic partnership, or if you would like to get started on your Domestic Relations Order today, please call QDRO Helper at (619) 786-QDRO / (619) 786-7376 or click here to email us.

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

Nunc Pro Tunc QDROs & Posthumous QDROs

We have already written a post about when a QDRO should ideally be completed and filed, but things do not always happen in an ideal way.  Sometimes clients contact QDRO Helper more than a decade after their divorce was finalized.  We even occasionally get contacted by an individual who never obtained a QDRO, but whose former spouse has recently passed away.  This post is about potential options for the division of retirement benefits after the death of a former spouse.

NUNC PRO TUNC JUDGMENTS

To avoid injustice, California Family Code §2346 grants judges in family law courts discretion to enter an Order or Judgment “nunc pro tunc”, which means that the Order or Judgment relates back in time to when it should have been entered.  With regard to the division of retirement benefits, a nunc pro tunc qualified domestic relations order may be entered after the death of a party before a QDRO was prepared, or even because of one party’s death prior to entry of the judgment of dissolution.

ARE NUNC PRO TUNC JUDGMENTS ALWAYS AVAILABLE FOR CALIFORNIA DIVORCE MATTERS?

The Ninth Circuit Federal Court (which has jurisdiction in California cases) has not yet specifically addressed the issue of posthumous QDROs.  However, a case from 2000 [Dirs. Guild of Am.-Producer Pension Benefits Plans v. Tise, 234 F.3d 415, amended, 255 F.3d 661 (9th Cir.2000)] has stated that there is “no conceptual reason why a QDRO must be obtained before the plan participant’s benefits become payable on account of his retirement or death”.  QDRO Helper has drafted nunc pro tunc QDROs for divorces which took place in California, which have been approved by California courts, and implemented by retirement plans.

The Eighth and Tenth Circuit courts have also allowed QDROs to be entered after a party’s death and have found that there is no requirement in ERISA or the Internal Revenue Code that a QDRO be completed at a specific time or prior to the participant’s death.  However, the Third Circuit has ruled against posthumous QDROs and has stated that a QDRO must be qualified prior to a plan participant’s death.

OTHER CONCERNS FOR NUNC PRO TUNC AND POSTHUMOUS QDROs

The benefits capable of being awarded under a nunc pro tunc QDRO may be limited; and it is always best to complete your QDRO concurrently with your judgment of dissolution.  For example, if your judgment or marital settlement agreement only reserves jurisdiction over the division of retirement benefits, you may not be able to obtain Qualified Pre-Retirement Survivor Annuity benefits under a nunc pro tunc QDRO, particularly if the plan participant remarried prior to death.  If your judgment or settlement agreement did not adequately address the division of retirement benefits, obtaining a posthumous or nunc pro tunc QDRO may be more difficult or may not be an option.

QUESTIONS ABOUT QDROS ENTERED AFTER DEATH?

If you have questions about nunc pro tunc QDROs or posthumous QDROs for California, please call QDRO Helper at (619) 786-7376 (QDRO).

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship, and readers should not act upon it without seeking professional counsel. Note also that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

What if my former spouse won’t sign the QDRO?

Often clients are concerned that once a Qualified Domestic Relations Order (or QDRO) is prepared, their former spouse will refuse to sign the QDRO.  Generally, both parties’ signatures are required in order to file the QDRO at court.

CONTEMPT PROCEEDINGS FOR QDROs

If the division of your retirement benefits was a part of your judgment of dissolution or court filed marital settlement agreement, then there is likely already a court order in place directing your former spouse to cooperate with the QDRO.  You, or your attorney, can remind your former spouse that if he/she refuses to sign any Domestic Relations Order, he/she will be in violation of the previous court order.  You can commence contempt proceedings against your former spouse under California Family Code §290 and §1218.  Any person who willfully disobeys a court order, and has both the knowledge and ability to comply with that order, and is found guilty of contempt may be fined, required to pay attorneys’ fees, ordered to perform community service, or imprisoned. 

MOTION TO APPOINT AN ELISOR FOR A QDRO

Another alternative is to file a motion to appoint an elisor.  An elisor allows a court-appointed individual to sign the QDRO on your former spouse’s behalf if he/she refuses to sign.  Your divorce attorney can assist you with this motion, which usually begins by completing and filing a “Request for Order” with the court that heard your divorce matter.  If you do not have an attorney, your local family law facilitator’s office may be able to assist you.

THE GOOD NEWS

The good news is that once a former spouse is made aware of the penalties for refusing to sign a QDRO, he/she will often become cooperative.  If you need help with a QDRO or have other Qualified Domestic Relations Order Questions, please call QDRO Helper today at (619) 786-QDRO.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship

QDRO Tax Issues

Written September 12th, 2012
Categories: General QDRO Info

There are various taxation issues to consider before obtaining a QDRO to divide retirement benefits pursuant to a marital dissolution or divorce.

TYPICAL QDRO TAXATION

Generally, under a Qualified Domestic Relations Order (QDRO), an employee benefit plan or retirement plan makes direct payments to each party his or her share of benefits.  Each party is taxed on the benefits paid to him or her (as long as the parties are spouses or former spouses).  The plan will report distribution information to the IRS and issue the appropriate tax forms to the parties.   As mentioned above, only a spouse or former spouse can be treated as a “distributee” for income tax purposes.  See IRC §402(e)(1)(A).

However, if an employee (instead of the plan) is making payments to a former spouse (because there is no QDRO or because the former spouse has exercised Gillmore rights), then the plan will report all distributions as income to the employee, and the employee spouse will likely be taxed on all distributions and will not be able to take a tax deduction for payments made to a former spouse, unless the payments to the former spouse qualify for spousal support tax treatment.

TAX ON EARLY DISTRIBUTION – 10% PREMATURE WITHDRAWAL PENALTY

If an employee takes an early distribution, i.e. before age 59 ½, the distribution is taxed as ordinary income to the employee and there is an additional 10% tax penalty levied on the amount distributed. See IRC §72(t)(1).  Payments under a QDRO made to an Alternate Payee are exempt from the additional 10% penalty on early distribution pursuant to IRC §72(t)(2)(c).

TAX TREATMENT OF ROLLOVERS

Most defined contribution plan distributions to alternate payees can be rolled into an IRA or other eligible retirement plan without any income tax or withholding consequences at the time of rollover, as long as the rollover is a direct trustee-to-trustee transfer.

If a direct rollover does not occur, the alternate payee receives the funds and rolls them over within 60 days of receipt, then the amount rolled over will not be taxes as income but 20% will be automatically withheld by the IRS.  The IRS will only refund the 20% withheld after the alternate payee files a tax return for that year; further if the alternate payee does not replace the 20% withheld when making the deposit in into the IRA or other plan (i.e. only 80% of the original distribution is redeposited), then the IRS will consider the 20% withheld to be a distribution to the alternate payee and he/she will be taxed on that distribution.  As you can see, it is critical to ensure that a direct rollover occur in order to avoid penalties and taxation issues.

WHAT IF THE ALTERNATE PAYEE IS NOT THE EMPLOYEE’S SPOUSE OR FORMER SPOUSE?

A child or other dependent of a participant may be an alternate payee under a QDRO, such as a QDRO for child support, but a distribution to an individual who is not the spouse or former spouse of the retirement plan participant will be taxable to the employee-participant only, not to the alternate payee.

TAXATION ISSUES FOR REGISTERED DOMESTIC PARTNERS’ QDROS

The federal Defense of Marriage Act (DOMA) does not recognize domestic partners as spouses (or former spouses) for federal tax purposes.  As described in the previous paragraph, this means that the employee/plan participant will have to pay taxes on any distributions paid to a registered domestic partner.  In order to address this inequity, parties in the dissolution of a domestic partnership may agree to award all retirement benefits to the employee partner and to offset such award with other community property being awarded to the non-employee partner.

DO YOU HAVE QUESTIONS ABOUT QDROS & TAX?

If you have additional questions about Qualified Domestic Relations Orders and tax issues, feel free to contact our California QDRO attorneys at (619) 786-QDRO.  You can also contact QDRO Helper to get started on your QDRO today!

 

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual. We strongly advise against sending confidential or privileged information to QDRO Helper until you can establish such a relationship.

Military Retirement & Divorce: Death & Survivor Benefits

SURVIVOR’S BENEFIT PLAN (SBP)

One of the most often misunderstood aspects of military divorce is what survivor benefits are available to a former spouse under military retirement.  In the broadest terms, without a Survivor’s Benefit Plan (SBP) in place that provides for a survivorship interest that is payable to the former spouse upon the servicemember’s death, a former spouse’s military retirement payments will stop at the death of the servicemember.  You can read the statutes about the Survivor’s Benefit Plan at 10 USC §§1447-1455.

The maximum amount of the standard SBP annuity is 55% of the member’s base retired pay and will be adjusted for cost-of-living increases.  The SBP program applies automatically to a member who is married or has at least one dependent child at the time he/she becomes eligible for retired pay.  A member can elect not to participate in the SBP; however, the member’s spouse must provide written consent if the member chooses not to participate in the SBP, or chooses to provide an annuity at anything less than the maximum level, or chooses to provide an annuity for a dependent child but not for the spouse.

It is also important to note that unlike many private retirement plans, the SBP cannot be divided between a spouse and a former spouse, or between two former spouses.  This can be a major issue for servicemembers who remarry; and can be addressed through life insurance, which is discussed under the “Servicemember’s Death Before Retirement” section below.

DISABILITY & DEATH (DIC PAYMENTS)   

If a service-connected disability causes a servicemember’s death before a dissolution of marriage is finalized, the surviving spouse can receive Dependency and Indemnity Compensation (DIC) benefits.  If a person qualifies for both SBP and DIC benefits, DIC payments will be subtracted from SBP payments.  DIC payments are not available to former spouses, i.e. if the parties are already divorced at the time of the servicemember’s disability related death.

SERVICEMEMBER’S DEATH BEFORE RETIREMENT

If a servicemember dies before retiring, his/her former spouse will still be entitled to SBP only if the servicemember 1) had already become eligible to retire, 2) qualified for retired pay but had not yet applied for or been granted retired pay, or 3) had completed 20 years of service, but had not yet completed the required 10 years of active commissioned service for retirement as a commissioned officer.  If none of the above 3 conditions apply, then the former spouse may not be able to receive any military retired pay benefits.  Often, the risk of losing all future benefits is addressed by the former spouse obtaining a life insurance policy.  Parties choosing to move forward with a life insurance policy to address this risk should include language in their settlement agreement that the non-servicemember spouse is entitled to insure the life of the servicemember, and is entitled to be the beneficiary of such policy.

DIVORCED MEMBER’S DEATH AFTER RETIREMENT– TIMING ISSUES & REQUIREMENTS

The death of the servicemember after the dissolution of marriage and after retirement is the most common scenario for parties who divorce.  As mentioned above, if a member provides SBP to a former spouse, the member’s current spouse and children of the later marriage cannot be SBP beneficiaries.  An election to make a former spouse an SBP beneficiary usually cannot be revoked.

There are critical timing issues that affect electing the SBP for a former spouse.  Once any court order is entered stating that a SBP will be provided for the former spouse, the former spouse must file a written request that the SBP election be deemed made with the Service Secretary within 1 year of the date of the court order.  If the parties’ dissolution proceedings and court order(s) do not address the SBP, the former spouse can petition the court at a later date to make an order awarding SBP coverage for the former spouse, and once that court order is entered, the 1 year time period will start.  It is important to note that the 1 year time limit starts to toll upon the filing of the first court order regarding the SBP or survivor benefits; subsequent court orders will not restart the 1 year election time period.  Any elections that are submitted by the former spouse pursuant to a court order are known as “deemed elections.”

Alternatively, if the member is going to make the designation, this will be known as an “actual election.” An actual election of the former spouse as SBP beneficiary must be written and signed by the member and received by Defense Finance and Accounting Service (DFAS) within 1 year after the date of the decree of divorce, dissolution or annulment.  When making the election, the member must also submit a written statement to the appropriate Service Secretary that is 1) signed by both the member and former spouse, and 2) states whether the SBP election is being made pursuant to a court order or voluntary written agreement as part of the dissolution proceedings, and whether the agreement was incorporated in, ratified by, or approved by a court order.

SURVIVORSHIP PREMIUMS

Parties should also be aware that the premiums for providing the SBP reduce the monthly retirement benefits before each payment is made.  This results in a potentially unequal division of the premiums.  For example, if the spouse is only receiving 30% of the monthly retired pay benefit, the member pays 70% of the SBP premium.  If the parties wish to equally share the cost of the SBP premium, then they will need to adjust the percentage of benefits awarded to each party based on a calculation of benefits and premium costs.  Such a calculation is outside of the services that QDRO Helper provides, but may be achieved through the parties’ divorce attorneys or an accountant or actuary familiar with military SBP benefits.

REMARRIAGE OF FORMER SPOUSE – SUSPENSION OF BENEFITS

If the former spouse remarries before reaching age 55, his/her SBP benefits will be terminated.

DEATH OF NON-SERVICEMEMBER SPOUSE

If the servicemember’s former spouse dies before the member, the member and the member’s benefits are freed from all applicable claims, costs, and restrictions.  All SBP premium deductions will stop as soon as the military pay center is notified of the former spouse’s death.  Further, the percentage of retired pay benefits awarded to the former spouse will revert to the service member.

NEED ASSISTANCE WITH DIVIDING MILITARY RETIREMENT BENEFITS?  

Call 619-786-QDRO to start your Military Retirement Domestic Relations Order today.  You can also visit our forms page to start completing the information we will need to draft your Order.  Read more about dividing Military Retired Pay and the Ten Year Rule here.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

SDCERS & Divorce: DROs for the San Diego City Employees’ Retirement System

SDCERS OVERVIEW

Employees of the City of San Diego, San Diego Unified Port District, and San Diego County Regional Airport Authority participate in SDCERS, and are “members” of the retirement system.  SDCERS is a defined benefit plan which provides for a monthly benefit upon retirement.  If employment is terminated, a member may withdraw his/her contributions; however, funds contributed by the employer cannot be withdrawn by the member.  If a member contributes to SDCERS while married, then his/her spouse will have a community property interest in the retirement benefits.

FIRST STEPS: GETTING MEMBER INFORMATION & SENDING NOTICE OF ADVERSE INTEREST 

All contents of a SDCERS member’s file are confidential.  However, the member, former spouse, and their attorneys can obtain information about the member’s benefits in order to determine the community property interests in a member’s account.  SDCERS will provide the member’s service credit and accumulated contributions, date of membership, refundable value, and statements of account as of the date of marriage and the date of separation.  If the member is already retired, the options selected at retirement, the named beneficiary, and the amount of the monthly allowance and any death benefit payable will be provided.  The member or his/her attorney can simply send a written request for this information to SDCERS.  The non-member spouse or his/her attorney will need to submit either (i) an authorization to release account information that is signed and dated by the member, or (ii) a subpoena for business records.

One of the first steps when dividing SDCERS benefits is to ensure that the retirement plan is aware of the pending divorce.  This can be accomplished by sending SDCERS a written “Notice of Adverse Interest.”  This will place a hold on the member’s account; but SDCERS will not pay the former spouse any share of benefits until SDCERS is joined (see below) and receives a Domestic Relations Order (DRO) instructing the Plan to pay benefits to the former spouse.  If the member is already retired, a Notice of Adverse Interest will ensure that SDCERS withholds the former spouse’s estimated share until the Plan receives the Joinder and DRO.  Further, SDCERS will withhold a portion of any return of contributions to the member.

SDCERS JOINDER REQUIREMENT

Like many other public employer plans, SDCERS must be joined to the marital dissolution proceedings before a DRO can be implemented.  “Joinder” is the legal process that names a third-party claimant to a court case; in this case, to legal separation or divorce proceedings.  Your family law attorney may have already prepared and filed a joinder for SDCERS.  However, if you need a Joinder for your SDCERS benefits, QDRO Helper can assist you with the joinder for an additional $200 flat fee.

SDCERS DOMESTIC RELATIONS ORDERS (DROs) & THE TIME RULE FORMULA / BROWN FORMULA

SDCERS requires both a Joinder and a DRO before benefits can be paid to a non-member spouse due to dissolution of marriage.  The DRO is a court order that will instruct the plan how the retirement benefits should be divided.  The most common method of dividing a community property interest in SDCERS is by using a formula knows as the “Time Rule Formula” or “Brown Formula”.  Using this formula, the former spouse’s share of benefits is determined taking 50% of a fraction where the numerator is the service credit earned by the member during the marriage and the denominator is the member’s total years of service credit.

TIMING & GILLMORE ELECTION

SDCERS will only start paying benefits to a former spouse once the member retires and commences receiving monthly retirement benefit payments.  However, under California law, the former spouse may demand his/her share once the member is eligible to retire, by making what is known as a “Gillmore election”- named after the court case Marriage of Gillmore, 29 Cal.3d 418 (1981).  The member will be responsible for paying the former spouse directly until the member retires; then SDCERS will begin making payments directly to the former spouse.

DROP ACCOUNT

Some SDCERS members participate in the Deferred Retirement Option Program (“DROP”).  Usually, when a member enters DROP, he/she also agrees to retire within 5 years.  DROP allows a member to keep the retirement benefit earned as of the date of entry into DROP while also earning additional benefits which can be paid in a lump sum or as additional retirement income.

When calculating the member’s benefits, the Plan treats the member as if he/she had retired on the DROP entry date and credits the member’s monthly pension to his/her DROP account.  Additional member and employer contributions, as well as COLA increases and any annual supplements are added to the DROP account.  DROP should be addressed in all DROs for both active members and members who are already part of DROP.  The parties should also be aware that SDCERS cannot pay the former spouse any DROP account benefits until the member actually retires and exits DROP.

DISABILITY BENEFITS

Disability benefits should also be addressed in the parties’ DRO.  Once common way to address this issue is to state that if a member receives a disability retirement before being eligible for service retirement, then the former spouse will only be able to receive his/her community interest share once the member reaches the required service retirement age.  However, it is possible to state that the former spouse will receive a community property share of any disability retirement benefits.   

SURVIVOR BENEFITS

Survivor benefits should also be discussed and negotiated by the parties prior to having a DRO drafted.  Members can designate beneficiaries to receive survivor continuance benefits; however, a member can only name one beneficiary for a survivor benefit.  Once a beneficiary is designated, the designation cannot be changed.  If a divorce takes place after retirement (or entry into DROP), the retirement option or beneficiary named at time of retirement cannot be changed.

At retirement, a member may select either the “maximum benefit” or one of four separate settlement options (aptly named Optional Settlement 1, 2, 3 and 4).  Detailed information about the various options can be obtained from SDCERS.  If the parties legally separate or divorce prior to the member’s retirement or entry into DROP the member can still provide a survivor benefit to the former spouse by elections one of the settlement options.  If the member does not elect to provide for survivor benefits when an option is selected, then SDCERS will stop payments to the former spouse upon the member’s death.

DEATH OF FORMER SPOUSE

Once the DRO is in place, the former spouse can name a beneficiary to receive his/her share of the benefits.  The former spouse’s share of benefits can instead revert to the member if the DRO specifically states that is the parties’ intent.  This is another issue that should be part of the divorce or legal separation negotiations.

SDCERS DEATH BENEFITS

SDCERS provides various death benefits, including benefits for death when the member was eligible to retire, industrial death benefits, active member death benefits, DROP death benefits, and death benefits after retirement.  Information about these death benefits can be obtained from SDCERS; however, it is important to note that even if the member has named a beneficiary other than the former spouse, the former spouse may have a community property interest in the death benefits.  The DRO should clearly state whether the former spouse will be entitled to any death benefits, and if so, then to what extent.  Often, parties will provide death benefits to the former spouse up to a pro-rate share based on the same “time rule” or “Brown formula” discussed above.

ADDITIONAL QUESTIONS ABOUT SDCERS & DIVORCE?

If you have additional questions or if you would like to get started on a DRO for your SDCERS benefits, please call 619-786-7376 to speak with an attorney at QDRO Helper.  You can also get started by visiting our forms page, or by emailing info@qdrohelper.com.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

OCERS QDROs: Orange County Employees Retirement System Benefits & Divorce

BASIC PLAN INFORMATION

Employees of Orange County earn retirement benefits under the Orange County Employees Retirement System (OCERS).  Both employers and employees (or “members”) make contributions to OCERS.  Upon retirement, OCERS provides a monthly benefit that is based on the type of plan, the employee’s age at retirement, average monthly earnings during employment, and the number of years of service.  Upon divorce, parties will require a Domestic Relations Order (or “DRO”) to divide the community property interest in OCERS benefits.  A DRO is a court order that provides the retirement plan with instructions about how to divide the benefits, and when to pay them, to the employee’s former spouse.

JOINDER REQUIREMENT

In order for OCERS to implement a Domestic Relations Order (“DRO”) the must be joined to the divorce proceeding.  Joinder is a legal process that names a third-party to an existing court case.  A joinder is the first step in obtaining a DRO to divide an OCERS benefit.  Your family law attorney may have prepared a joinder already; however, QDRO Helper can assist you with the preparation and service of a joinder for an additional $200 flat fee.

TYPICAL DIVISION OF OCERS BENEFITS: TIME RULE / BROWN / JUDD FORMULA

OCERS benefits, like many traditional pension plans, are most often divided using what is known as the
“Time Rule Formula”, “Brown Formula” or “Judd Formula”.  All three terms refer to a formula which utilizes a ratio between the time of employment during marriage and the total time of employment in order to calculate a former spouse’s share of retirement benefits.  Under these formulas, the community property portion of the accrued retirement benefit payable by the Plan is determined by a percentage of the benefit determined by a fraction, the numerator of which is the number of months the Member earned a benefit under the Plan during the marriage and the denominator of which is the total number of months the Member earned a benefit under the Plan through date of the Former Spouse’s benefit commencement date.  The Former Spouse’s benefit is determined by multiplying the community property portion by one-half.

Other options for division can be discussed as part of the divorce settlement process; however, your judgment or marital settlement agreement should not specify a specific lump sum dollar amount payment, as that is not a payment option under OCERS and any DRO specifying a lump sum payment will be rejected by the Plan.

DEATH AND SURVIVOR BENEFITS

If the Former Spouse dies before the Member, then all payments that would have been payable to the Former Spouse will be paid instead to the Former’s Spouse’s beneficiary or estate.

If the Member dies before the Former Spouse, the Former Spouse will receive a pro-rata share of any survivor benefits available under the Plan.  The pro-rata share will be determined using the same formula as was used to determine his/her community interest in the plan, such as the Judd Formula described above.

NEED HELP WITH AN OCERS DRO?

If you need help with an OCERS Domestic Relations Order, call QDRO Helper today at 619-786-7376.  You can also send an email to info@qdrohelper.com to request new client packet to divide an OCERS benefit.  Get started on your QDRO today by downloading forms here.  By utilizing technology, we are able to offer attorney-drafted QDROs to clients in Orange County, California, including Santa Ana, Irvine, Huntington Beach, Garden Grove, Fullerton, Costa Mesa, and Anaheim without any in-office appointments required.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

QDROs for Traditional Pension Plans / Defined Benefit Plans

Defined Benefit Plans are retirement plans which provide participants with a fixed payment on a regular basis (usually monthly) after retirement.  Defined Benefit plans are often thought of as traditional pension plans; these plans have become less common and are now being rapidly replaced with Defined Contribution plans by many employers.  Defined Benefit plans are based on a fixed formula (usually involving the participant’s age at retirement, years of service, and final pay), whereas Defined Contribution plans are based on investment performance and the value of an individual account.

FORMS OF BENEFIT FOR ALTERNATE PAYEE

The vast majority of defined benefit plans will not allow the non-employee spouse (“Alternate Payee”) to receive a lump sum cash payment.  Usually both the employee (“Participant”) and Alternate Payee will receive monthly payments after retirement.  You should be wary and check with the retirement plan if your lawyer has awarded one party a specific dollar amount from a defined benefit plan.

DEFINED BENEFIT PLAN TIMING

Benefits for defined benefit plans can usually only be paid to an Alternate Payee once the Participant reaches his/her “earliest retirement age” as allowed by the Plan.

METHODS OF DIVISION & SURVIVOR BENEFITS

Survivor benefits would depend on whether the plan allows for both shared and separate interest approaches for dividing benefits, and if they allow both, then which option the parties choose.  Usually, if a “separate interest” approach is used, the Alternate Payee’s share is actuarially adjusted to his/her lifetime, will be payable for the lifetime of the Alternate Payee, and often the Alternate Payee can name his/her own beneficiaries.  Usually under a “separate interest” method of division, the Alternate Payee will not receive any additional benefits upon the Participant’s death and the Alternate Payee’s share will not be affected in any way by the Participant’s benefits.

If the parties use a “shared interest” method of division, then it is typical for the Alternate Payee to receive survivor benefits.  QDROs can specify that the Participant must choose a form of payment that provides for survivor benefits at retirement.  Further, the survivor benefits under many plans can be based on the marital formula, which could potentially allow survivor benefits to be split between a former spouse and a current spouse.  However, not all plans allow survivor benefits to be paid to more than one individual.  Each plan’s particular options should be considered when negotiating the division of pension benefits due to divorce.

QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY (QPSA)

A Qualified Pre-retirement Survivor Annuity (QPSA) is a benefit paid to a Participant’s spouse if the Participant dies prior to retiring.  Under most defined benefit plans which offer QPSA benefits, it is possible to award either all or a portion of the QPSA to a former spouse via a QDRO.  If only a portion is awarded, it is typically a pro-rata share based on the portion of the retirement plan awarded under the QDRO.

NEED HELP WITH YOUR DEFINED BENEFIT PLAN QDRO?

If you need assistance with your QDRO, please call (619) 786-QDRO to speak with one of our helpful California QDRO attorneys today.  You can also visit QDRO Helper’s FAQ and Blog articles for more information.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

CalPERS & Divorce: What You Need to Know about DROs

The California Public Employees’ Retirement System (CalPERS) provides benefits to more than 1.6 million people.  If you or your former spouse is a CalPERS member, you should be aware of how CalPERS benefits can be divided due to divorce or legal separation.

CalPERS Community Property and Governing Law

Just like other assets acquired during marriage, California community property law allows CalPERS benefits to be divided upon dissolution or legal separation of a marriage or registered domestic partnership.  Unlike many private retirement plans, CalPERS is not bound by ERISA or Section 414(p) of the Internal Revenue Code; but is instead codified in the California Public Employee’s Retirement Law (PERL).  CalPERS is a defined benefit plan and is divided by filing a Domestic Relations Order (DRO) with the court and providing a certified copy to CalPERS.

First Steps: Notify CalPERS of the Claim & Requesting Information on a Member’s Account

One of the first steps that the nonmember should take to protect his/her interest is to send written notice to CalPERS that he/she will be making a claim for his/her share of the community property in a member’s account.  The written notice most commonly takes the form of a joinder, which is a legal document that joins CalPERS as a party to the dissolution or separation.  This will place a community property hold on the member’s account that can only be removed by submitting a court order or through other formal, written procedures.  This will ensure that CalPERS will release no benefits to an active member until the hold is removed, or will reduce a retired member’s monthly benefit by ½ until the hold is removed.

Legally, a member’s retirement file is confidential and can only be accessed by the member or his/her authorized representative.  However, information can be released to the nonmember and his/her attorney if either i) the member provides written authorization for the release of information, ii) CalPERS has been joined as a party to the legal separation or dissolution, or iii) a valid subpoena duces tecum is served on CalPERS.  Once CalPERS has a valid request for information, they will provide the following information:

  1. A statement of the member’s accumulated contributions and interest for the specific time period requested.
  2. A statement regarding the member’s years of service credit.
  3. A statement showing the member’s classification (i.e. State, local, or safety member) and the benefit formula applicable to the member.
  4. If the member is already retired, the plan will provide information about the option elected at retirement, the beneficiary, the amount of the gross monthly allowance, and details about any death benefit payable.
Methods of Division:  Separation of Account or Time Rule Formula

There are two methods of division for a CalPERS account, i) Separation of Account or ii) Time Rule Formula.  The Separation of Account method can only be used for members who are not yet retired.  The Time Rule Formula can be used by both retired and non-retired members.  Once a member is retired, rather than the time rule, a DRO can specify a flat dollar amount or percentage of the member’s monthly payments that should be payable to the nonmember spouse.  The main differences between the two methods of division are summarized in the chart below:

  SEPARATION OF ACCOUNT  METHOD TIME RULE FORMULA
 Basic   method information  Allows the community property interest in a member’s pension to be separated into 2 accounts – one in the name of the   member and one in the name of the nonmember spouse.  Can only be used by active or inactive   members, not retired members. There will only be one account (in member’s   name) and nonmember spouse receives a lifetime benefit equal to his or her   community property interest.
How   Division of Benefits is Calculated The amount awarded to the nonmember spouse   is usually 50% of the member’s accumulated contributions, interest, and   associated service credit earned during the marriage.  Nonmember’smonthly benefit will be calculated using member’s   salary on the date of dissolution, the nonmember’s age at the date of   retirement, and the amount of service credit awarded to the nonmember spouse. CalPERS will calculate the service credit   earned from the date of marriage to date of separation, and what percentage   of the monthly benefit is payable to the former spouse as his/her community   property interest.  The calculation   will use member’s final compensation at time of retirement.
Nonmember   Spouse’s Benefit Commencement Possible when both parties reach the minimum   retirement age. Nonmember spouse’s interest can only be paid   by CalPERS at the time that benefits become payable (member’s retirement date   or death).
Nonmember   Spouse’s Payment Options Monthly allowance, or withdrawal by nonmeber   refund or rollover. Monthly allowance.  The DRO should also specify that CalPERS   should pay the nonmember spouse “by separate warrant” – otherwise the member   is responsible for paying the nonmember spouse each month.
Optional   Settlement at Retirement No restrictions on member’s election.Nonmember spouse can elect an option for   his/her account and name beneficiaries. Generally, a DRO states that a member must   elect optional settlement 4 and name nonmember spouse as beneficiary to the   extent of his/her community property interest. Parties should also negotiate   about how the cost of the benefit is to be applied, i.e. against the member’s   share, against the nonmember’s share, or equally.
Death   Benefits Member’s death does not affect Nonmember’s   spouse’s separate account.  Nonmember   spouse can designate a beneficiary for a one-time lump sum death benefit. Upon Member’s death Nonmember spouse   receives his/her community property interest in any lump sum or other death   benefits payable by the Plan, and any benefits required by the Option elected   at retirement.Upon Nonmember’s death, his/her share can   either i) stop and revert to the member or ii) be paid to Nonmember’s named   beneficiaries.

 

CalPERS Health Benefits and Divorce

Although health care can be provided under a CalPERS sponsored health plan, health benefits to a former spouse terminate on the last day of the month in which the marriage terminated.  CalPERS Health benefits are not subject to a Domestic Relations Order or DRO.

Other Concerns: Elective Service Credit, Cost-of-Living Increases, Waiver of Benefits

It is important to address any elective service credit in the DRO.  Elective service credit can be from service prior to membership, a redeposit of refunded contributions, any additional retirement service credit, or military service.  If the Domestic Relations Order does not address elective service credit, later purchases of credit or deposits of credit will be treated as the member’s separate property interest.

Generally a DRO will provide that the nonmember’s interest will increase proportionately with any cost-of-living increase or similar increase.  If this is not the parties’ intent, it should be addressed in their judgment or marital settlement agreement.

If it is the agreement of the parties that the nonmember spouse will forever waive his/her interest in all CalPERS benefits, a written Waiver of Community Property should be completed and given to the plan administrator or a court order or DRO should be filed that awards the entire CalPERS benefit to the Member.

Need Help With Your CalPERS DRO?

If you and your former spouse need assistance with dividing CalPERS benefits, you can email a knowledgeable QDRO lawyer at info@qdrohelper.com or call 619-786-QDRO to get started today!

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

QDROs for the UCRP (University of California Retirement Plan)

Employees of the University of California are participants in the University of California Retirement System (UCRS).  The UCRS offers a defined benefit pension plan known as the University of California Retirement Plan (UCRP).  For certain UCRP participants, the CAP (Capital Accumulation Payment) provides a supplement to UCRP benefits.  CAP benefits can also be divided by QDRO and can be addressed in the same QDRO as the UCRP division.  The UC system also offers defined contribution plans – such as a 403(b) plan and a 457(b) Deferred Compensation Plan.  The UCRP is the focus of this article, an article about University of California defined contribution plans will follow at a later date.

Joinder Requirement

Joinder is a legal process that names a third-party (such as the UCRP) to the parties’ divorce case.  The University of California requires a joinder to be filed and served on the plan before a Domestic Relations Order can be approved and implemented.  Joinder is the first step in obtaining an Order to divide UCRP benefits.  Once the joinder has been filed and served on the plan, both spouses can request information from the UCRP about the benefits earned by the member during the marriage and the nonmember’s options under a QDRO.  UCRP can provide the parties with the member and employer contributions and earnings for UCRP/CAP as well as service credit information, applicable offsets, and an estimate for the nonmember spouse’s lump sum cashout.

QDRO Before Member Retires

If a QDRO is filed before the Member retires, upon receipt and approval of a QDRO, a separate account will be created for the nonmember spouse (“alternate payee”) which includes his/her share of UCRP service credit, contributions and interest, and his/her share of the CAP.

If the member is not yet eligible to retire, the alternate payee can either i) elect to maintain the separate account, name his/her own beneficiary, and begin to collect benefits once the member is eligible for retirement, or ii) elect a refund on the contributions and interest in his/her separate account and waive all rights to future retirement benefits.    

If the member is eligible to retire, the alternate payee may either i) elect a lump sum cashout of the actuarial value of monthly retirement income (the cashout is mandatory if a cashout would be less than $20,000) or ii) maintain his/her separate account until the Member elects to retire or dies, or iii) request a refund of his/her share of contributions and interest and waive all rights to future retirement benefits.

There are a myriad of scenarios that can affect benefits due to the death of the parties (such as whether the death occurs before or after retirement or if the member has less than 5 years of service credit), but generally speaking, an alternate payee’s share of benefits will not change because of the member’s death, and the alternate payee can name his/her own beneficiary.  It is important to note that the alternate payee can be named by the member as his/her contingent annuitant, and could receive additional benefits upon the member’s death.

QDRO After Member Retires

If the QDRO is processed after the member retires, the alternate payee will not have his/her own account; instead, the member’s retirement income is reduced to provide monthly payments to the alternate payee based on the amount awarded to the alternate payee under the QDRO.

Upon the member’s death prior to the death of the alternate payee, the alternate payee’s monthly payments cease.  However, if the alternate payee was named as the Member’s contingent annuitant, payments under the option will begin.  Further, the alternate payee will also receive some benefits if the QDRO provided for the basic death payment to be made to the alternate payee.  If no one else is eligible for survivor continuance or option portion, a prorata refund of the balance of UCRP accumulations will be paid to the alternate payee based on the division of benefits described in the QDRO.

Upon the alternate payee’s death prior to the death of the member, the alternate payee’s beneficiary will receive a lump sum payment of the remaining value of the alternate payee’s share of retirement benefits.  Benefits do not revert to the member upon the alternate payee’s death.  When the alternate payee dies after the participant, any contingent annuitant payment stops, but the alternate payee’s beneficiary can receive a prorata share of the balance of UCRP accumulations if no one is eligible for a survivor continuance.

It is important to realize that the Retired Member’s election that is made at retirement is binding as to the payment option elected and designation of Contingent Annuitant; it cannot be changed with a QDRO after retirement.

Need a UCRP QDRO?

If you need assistance with dividing your University of California Retirement System or UCRP benefits, please call 619-786-QDRO to speak with one of QDRO Helper’s friendly attorneys.  You can also email us at info@qdrohelper.com to request a new client package today!

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

Article Published at ScoopSanDiego.com: How Divorce Affects Retirement Benefits

Visit ScoopSanDiego.com to read about how divorce affects retirement benefits in this article written by Madeline L. Hill, Esq., owner of QDRO Helper.

Dividing FERS / CSRS Benefits in Divorce or Legal Separation

This article addresses the options for dividing a member’s Federal Employees’ Retirement System (FERS) or Civil Service Retirement System (CSRS) benefits in the event of divorce.  FERS covers federal employees hired after 1983; those hired prior to 1983 are covered by CSRS.  Orders dividing ERISA governed retirement benefits are commonly referred to as QDROs (Qualified Domestic Relations Orders); however, FERS and CSRS are not governed by ERISA and an order dividing FERS or CSRS due to divorce is called a “court order acceptable for processing” or COAP.  The paragraphs below cover, in general terms, the most common issues addressed in COAPs for CSRS and FERS benefits.

Methods of Division

Court orders must provide a method of computing the former spouse’s interest, i.e. the order must provide a formula that can be implemented by the Office of Personnel Management (OPM).  The former spouse’s share should be expressed as either a fixed amount or a percentage or fraction of the employee annuity.  All variables in any formula submitted to OPM must be ascertainable from the face of the COAP or in OPM records, such as the employee’s periods of creditable service and basic pay rates.  The most common method of division for a COAP utilizes a “marital fraction.”  Using this formula, a former spouse would receive a share of the employee’s annuity or refund of employee contributions equal to 50 percent times the fraction created by the number of months of civilian and military service performed by the employee during marriage (from date of marriage through date of separation) divided by the total number of months of civilian and military service performed by the employee.  This would be described as the former spouse’s “pro rata share.”

Survivor Benefits

To qualify for “surviving spouse” benefits, a former spouse must have been married to the employee for at least 9 months, or a child must have been born of the marriage, or the employee’s death must have been accidental.

Survivor Benefits can be paid to both a former spouse and the employee’s spouse at the time of death (if the employee remarried).  However, an Order directing OPM to provide survivor benefits to a former spouse will not be honored if it would cause the total of survivor annuities payable under the Plan to exceed 50% of the employee’s unreduced basic annuity.  Typically a former spouse will be awarded at least a portion of the survivor benefits to ensure that all payments to the former spouse do not cease upon the employee’s death.

It is also important to note that if the employee’s former spouse dies or remarries before reaching age 55, then there will be no payment of a survivor annuity.

Survivor benefits will only be awarded if the employee makes an election at the time of retirement that provides for survivor benefits – he/she cannot choose a self-only annuity.  There are a myriad of annuity options that can be affected by divorce and remarriage which are beyond the scope of this article; however, employees should contact an attorney or OPM to fully understand their options.

Gross Annuity / Net Annuity/ Self Only Annuity

If a court order states the former spouse’s share of the employee annuity as a formula, percentage, or fraction, OPM must be able to determine which of the 3 types of annuity defined below on which to apply the calculation. OPM will apply the formula to gross annuity unless the COAP states otherwise. Thus, if the parties want to use a net annuity or self-only annuity for the COAP calculation, it should be agreed to by the parties during the dissolution or legal separation process.

               Gross annuity means the monthly annuity payments by FERS or CSRS that are payable after reducing the self-only annuity to provide for a survivor annuity, if any, but before any other deduction. Unless the court order provides otherwise, gross annuity also includes any lump-sum credit payments.

               Net annuity means the monthly annuity payments under FERS or CSRS that are payable after deducting from the gross annuity any amounts owed by the employee to the United States, for health and life insurance premiums, and for withheld state and federal taxes (excluding excessive exemptions), and amounts payable to another person under another COAP or a child support enforcement order.  Other terms used for net annuities include “disposable annuity” and “retirement check.

               Self-only annuity, as mentioned in the survivor benefits section, means the monthly annuity payments under FERS or CSRS to a retiree who has elected not to provide a survivor annuity to anyone.  This type of annuity is also called “life rate annuity,” “unreduced annuity,” or “annuity without survivor benefit.”

For further reading, the rights of former spouses under qualifying court orders and COAPs that award FERS and CSRS benefits at divorce are detailed in the Code of Federal Regulations. Part 838 of Title 5.

If you need help with a FERS or CSRS Order, please call QDRO Helper at 619-786-QDRO / 619-786-7376 or email us at info@qdrohelper.com.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

CalSTRS QDROs: Methods of Division, Registered Domestic Partners, Joinders & Death Benefits

We will be writing a series of blogs on specific retirement plans and their unique provisions.  We are starting with the California State Teachers’ Retirement System, more commonly known as CalSTRS or STRS.  For this article the terms “Stipulation and Order Regarding California State Teachers’ Retirement System (CalSTRS)” and “QDRO” are used interchangeably.  If you would like to request a blog on a specific plan, please email us at info@qdrohelper.com.

CalSTRS provides three different retirement plans: Defined Benefit Program, Defined Benefit Supplement, and a Cash Balance plan.  Members can have any one of these plans, or even all of them.  For the Defined Benefit Program, upon retirement members receive a lifetime benefit based on their years of service credit, final compensation, and age.  Defined Benefit Program members who have earned service credit after the year 2000 will also have a Defined Benefit Supplement account, which can provide additional funds to members upon retirement or if they leave STRS covered employment.  The Cash Balance Benefit Program is designed for part-time, temporary and substitute teachers.  Upon retirement, members can choose to receive the contributions and interest on the Cash Balance Benefit as a lump-sum payment of if the account balance exceeds $3,500, it can be rolled over into another qualified plan.

METHODS OF DIVISION


The  methods of division available depend on the type of plan and the status of the employee spouse or “member”.  For non-retired members who participate in the Defined Benefit plan and/or the Defined Benefit Supplement plan, there are two methods of division available, the “Time Rule Formula” or the “Segregation Method”.  For retired members of the defined benefit type plans, the only option for division is the Time Rule Formula.

Below is a chart comparing the differences between the “Time Rule Formula” and “Segregation Method” for CalSTRS.

SEGREGATION METHOD TIME RULE FORMULA
When is it an option? Only if the member is not retired and is not receiving disability benefits. Can be used if member is retired or active.
How is the Award Calculated? Typically, the nonmember spouse is awarded 50% of the member’s service credit, contributions and interest from the date of marriage through the date of separation. The nonmember spouse is awarded a percentage of the member’s monthly benefit, and the percentage can be calculated by CalSTRS based upon the service credit earned during marriage.
Are there legal holds on the account? After the court filed QDRO is received by the plan, holds are removed unless there is a longevity bonus or other account enhancement.  Each party will have and control his/her own account with the Plan. Holds remain on the account and the nonmember spouse can request benefit estimates at any time.  The nonmember spouse can only receive benefits when the member is receiving a benefit (i.e. there is only one account in which both parties have an interest).
When can the nonmember spouse get benefits? The nonmember spouse can apply to commence monthly benefits at age 55 or older.  Benefits are not dependent on the member since the nonmember spouse will have his/her own account. CalSTRS will not pay the nonmember spouse until the member retires.  The nonmember spouse shares the member’s account.
Is there a lump-sum distribution option? Yes, the nonmember spouse can apply for a refund of contributions & interest at any time. No – the nonmember spouse cannot obtain a refund and does not have access to contributions or interest.
How does the monthly benefit work? At age 55 or older the nonmember spouse can apply for a lifetime monthly benefit, which will be calculated using the member’s salary on the date of separation, the nonmember spouse’s age on the effective date of the benefit, and the service credit awarded to the nonmember spouse. A proportionate share of the member’s monthly benefit is paid to the nonmember spouse by CalSTRS each month once the member applies for and begins receiving benefits.  The benefit is calculated using the member’s salary at the time of retirement.
What happens to Defined Benefit Supplements and Cash Balance accounts? A member’s Defined Benefit Supplement account or Cash Balance account can only be divided by a specified flat percentage.These accounts contain only contributions and interest. Service credit does not apply to these types of benefits. Nonmember spouse receives a proportionate share of member’s account if specified in the court order. This share is usually determined by the percentage derived from the time rule formula when calculating the nonmember’s percentage of the Defined Benefit account.
What happens to the nonmember spouse’s award of service credit, contributions and interest? They are removed from the member’s accounts and form a new account for the nonmember spouse. They remain in the member’s account.

 

Cash Balance plans must be divided using the Segregation Method and the QDRO must specify the percentage or flat dollar amount that will be awarded to the nonmember spouse.

DOMESTIC PARTNERSHIP & CALSTRS

CalSTRS benefits are considered community property under California law and upon termination of a registered domestic partnership, CalSTRS benefits can be divided.  However, the federal government does not currently recognize domestic partners as spouses for tax purposes, so parties should consult with a tax advisor to determine how the division of these retirement benefits will affect each party.

JOINDER

CalSTRS must be joined to be bound by the terms of a QDRO.  This means that a joinder must be filed with the divorce court which makes CalSTRS a party to the divorce action, and then CalSTRS must be served with these documents.  The joinder will put a legal hold on the account and prevents a member who is not yet retired from making account changes, including changing beneficiaries.  A joinder also allows the nonmember spouse to obtain specific account information without a subpoena or the member’s written permission.

WHAT HAPPENS UPON THE MEMBER’S DEATH? / OPTION ELECTION

One-Time Death Benefit

A one-time death benefit is available; the amount paid to the beneficiary(ies) depends on what coverage the member selected and whether the member’s death occurs before or after retirement.  Either all or only a community property portion of the one-time death benefit can be awarded to the nonmember spouse under a QDRO.  If only the community portion is awarded to the nonmember spouse, then the member can designate another beneficiary for the remainder of the one-time death benefit.

Option Election

If the parties use the Time Rule Formula to divide CalSTRS benefits, the nonmember’s benefits (which are a portion of each monthly payment to the member) will also terminate.  If the parties agree that the nonmember spouse is entitled to monthly benefits after the member’s death, the member must elect an “option” naming the former spouse as a beneficiary; he/she cannot choose a Member-Only Benefit.  There are four options to choose from to provide benefits for a former spouse:

  • 100% Beneficiary Option: This option will provide the beneficiary with 100% of the amount the member was receiving.
  • 75% Beneficiary Option: This option will provide the beneficiary with 75% of the amount the member was receiving.
  • 50% Beneficiary Option: This option will provide the beneficiary with 50% of the amount the member was receiving.
  • Compound Option:  This option allows the member to name one or more beneficiaries for specifically allocated percentages of the monthly benefit.  This option allows a member to name both a former spouse and current spouse as death benefit beneficiaries.
COMMUNITY PROPERTY STATEMENT OF ACCOUNT

Before making any decisions about the division of a CalSTRS account, the parties should request a Community Property Statement of Account from CalSTRS, which can be obtained by using the request form here.

GET STARTED TODAY!

If you need help with a CalSTRS Order, please call QDRO Helper at 619-786-QDRO or email us at info@qdrohelper.com.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

Get Your Free QDRO Guide Today

The United States Department of Labor has published a guide called “QDROs: The Division of Retirement Benefits Through Qualified Domestic Relations Orders”.  You can view the guide here.  It answers basic Qualified Domestic Relations Order questions, such as:

  • What is a QDRO?
  • Who can be an “alternate payee”?
  • What information must be included in a domestic relations order for it to be “qualified”?
  • Who determines whether a domestic relations order is a QDRO?
  • Will a domestic relations order fail to be a QDRO solely because of when it was issued?
  • What are the duties of a retirement plan administrator upon receipt of a domestic relations order?
  • What disclosure rights does an alternate payee have under a QDRO?
  • What happens if a plan is terminated?
  • Why is an understanding of the type of retirement plan important?
  • What are survivor benefits?
  • When can the alternate payee get the benefits assigned under a QDRO?
  • What is “earliest retirement age” and why is it important?

This guide is a great foundation for a basic understanding of QDROs.  If you have further questions about QDROs, email QDRO Helper today.

 

QDROs for Child Support and Spousal Support

The most common use of a Qualified Domestic Relations Order (QDRO) is for the division of marital property.  However, QDROs can also be used for child support and spousal support, and to collect arrears for these types of support.  Retirement funds for support obligations are often overlooked by family law attorneys, but in many cases may be the only source of funds available.  Unlike garnishment of wages, once a QDRO for support is entered by the court and accepted by the retirement plan administrator, even if the employee spouse moves out of state, quits his/her job, or minimizes taxable income by being paid in cash, a properly structured QDRO will ensure payment of outstanding support obligations.

Before assuming that a QDRO will solve all of your support problems, you should be aware of certain retirement plan limitations and other obstacles, which we have outlined for you below.  We also explain how different types of retirement plans work better for arrearages than others.  It is critical to remember that retirement plans are not forced to comply with California family law; if there is a conflict between the terms of the plan and the QDRO, the terms of the plan prevail.

Types of Plans and Timing

The two most common types of retirement plans are defined benefit plans (traditional pension plans) and defined contribution plans (such as 401(k) plans).  QDROs will usually not be approved by the plan if QDRO changes the standard method of payment by the Plan.

For defined benefit plans, payments can usually only be made once the employee has reached the earliest retirement age allowable by the plan, and the payments will be made on a monthly basis.  This means that if a person is a long way from retirement, it may be years before the retirement plan assets become available for support obligations.  Defined benefit plans are best for a monthly support obligation for an employee who is at or very near to retirement age.  Support QDROs for pension plans should specify the amount that the alternate payee will receive each month.  Typically a lump-sum amount for support arrears will not be payable by a defined benefit plan.  Unless the employee spouse obligated to pay support is already retired, a pension plan QDRO may not be an immediate solution.

In contrast, defined contribution plans are ideally suited for payment of lump sum child or spousal support arrears.  Once you obtain a court order saying the lump sum that is owed, it is a fairly straightforward process to get a QDRO in place for the payment of that lump sum from a defined contribution plan.   It is also important to note that more than one support QDRO can be filed for each retirement plan.  For example, one QDRO could be filed for arrearages from 2001-2005 and another could be filed for arrearages from 2006-2011.  Unlike pension plans, most defined contribution plans will not honor an order for a payment to be made for a support obligation on a monthly basis.  Rarely, if a defined contribution plan is the only support asset for child support or for long term spousal support, then a court may order that a lump sum be withdrawn from the defined contribution plan.  The lump sum would then be placed in an interest-bearing account and the monthly support payments could come from the account.

Tax Issues

The QDRO should always specify the tax responsibility of the parties, otherwise the plan may just assign tax liability to the recipient of the funds.  However, the general rules are: (1) for child support, the employee (plan participant) is liable for taxes on the amounts paid out for current or back child support; and (2) for spousal or family support, the recipient (alternate payee) must pay taxes on the amount received by him/her.  Often for defined contribution plans, the plan will automatically withhold 20% of any distribution, so the total amount of the payment may need to be adjusted to account for tax issues.

The Process for Child Support or Spousal Support QDROs

In the simplest terms, the process for obtaining a QDRO for back child support or spousal support is:

  1. Locate the original judgment or court order that said what amount was to be paid (i.e. the original order for $500/month child support).
  2. For child support, you can contact the state/county child support agency to obtain a record of the amount owed.
  3. Have a QDRO drafted by an attorney to meet the terms of the plan for both payment and for qualification of a QDRO.
  4. Send the draft QDRO to the plan administrator for approval, revise if necessary.
  5. Once approved by the plan administrator, obtain the parties signature on the QDRO and file it with the court.
  6. Send a certified copy of the QDRO filed at court and signed by the judge to the plan administrator.
Questions?

If you have questions about QDROs for spousal support or child support you should consult with your family law attorney or contact an attorney at QDRO Helper by calling 619-786-QDRO (7376).

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

When Should I File My QDRO?

Written June 12th, 2012
Categories: General QDRO Info

We draft some QDROs for clients still in the divorce process, some for clients who have been divorced for over twenty years, and the majority for clients within two years of their divorce being finalized.  When is the best time to file a QDRO?

Ideally, a qualified domestic relations order (QDRO) should be prepared and filed concurrently with the dissolution judgment.  By filing a QDRO concurrently with the judgment, both parties can have the peace of mind that all issues are settled, instead of finding out months or years later that the marital settlement agreement or judgment did not address all QDRO issues in sufficient detail, so additional negotiation and litigation may be necessary.

Without a QDRO in place, the non-employee spouse risks:

  • Losing all of his/her benefits if the employee spouse dies
  • Losing his/her rights if the participant takes disability retirement instead of a longevity retirement
  • Losing pre-retirement survivor annuity benefits
  • Losing survivor benefits if the employee spouse remarries
  • Losing other available survivor benefits
  • Losing the option to elects a separate interest in a defined benefit plan
  • Losing rights to a coverture-based pension
  • Losing his/her share of early retirement subsidies and cost of living adjustments (COLAs)
  • Missing months or years of pension payments if the participant retires unbeknownst to the non-participant spouse
  • With regard to 401(k) plans: losing investment gains on 401(k), losing his/her entire share if participant quits and takes distribution, losing rights to name beneficiary upon his/her own death, and losing the right to direct investment for his/her own share of the benefits.

If parties delay filing a QDRO, they can also encounter difficulty if the employer sponsoring the retirement plan is liquidated, merges with another company, is acquired by another company, or even if the employer hires a new third party to act as administrator of the plan.

For all of the reasons listed above, and due to the unpredictability of life events, it is the best practice to get your QDROs drafted before the divorce is finalized.  If that is not an option, QDROs should be prepared as soon as possible after the judgment for dissolution is entered.

If you would like to get started on your QDRO today, please call (619) 786-QDRO or email QDRO Helper at info@qdrohelper.com.  You can also download all the required forms by clicking on our forms page.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

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