Madeline Hill - QDRO Helper | California QDRO Attorneys

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

by Madeline Hill | Sep 20, 2012 | General QDRO Info

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. 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 or click here for a new client packet.

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

by Madeline Hill | Sep 12, 2012 | 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

by Madeline Hill | Sep 5, 2012 | General QDRO Info, Military Retirement / TSP

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

by Madeline Hill | Aug 28, 2012 | City of San Diego, Defined Benefit Plans, General QDRO Info, SDCERS

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 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

by Madeline Hill | Aug 23, 2012 | Defined Benefit Plans, General QDRO Info, OCERS, Public Employee Plans

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 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.