WHAT 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.
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