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QDROs - Division of Pensions FAQs

1. What is a Qualified Domestic Relations Order?

2. What is a Domestic Relations Order?

3. Must a Domestic Relations Order be issued by a state court?

4. Who can be an Alternate Payee?

5. What information must a domestic relations order contain to qualify as a QDRO under ERISA?

6. Are there other requirements that a domestic relations order must meet to be a QDRO?

7. May a QDRO be part of the divorce decree or property settlement?

8. Must a domestic relations order be issued as part of a divorce proceeding to be a QDRO?

9. Will a domestic relations order fail to be a QDRO solely because of the timing of issuance?

10. May a QDRO provide for payment to the guardian of an alternate payee?

11. Can a QDRO cover more than one plan?

12. Must all QDROs have the same provisions?

13. Who determines whether an order is a QDRO?

14. Who is the administrator of the plan?

For more on Retirement Plans read on...

 

Contact a Los Angeles Divorce Attorney at Law Offices of Warren R. Shiell

Call for a free consultation now 310.247.9913.

Divorce and Money

Los Angeles Family Law Attorney

Divorce Lawyers|Attorneys Los Angeles, Beverly Hills

California Prenuptial, Prenups 


Retirement Plans FAQs

1. Types Of Retirement Plans

2. Earning Retirement Benefits 

3. Plan Information To Review

4. Payment Of Benefits

5.Taking Your Retirement Benefit With You

6. Your Benefit During A Plan Termination Or Company Merger

7. Divorce - Potential Claims Against Your Benefit

In general, your retirement plan is safe from claims by other people. Creditors to whom you owe money cannot make a claim against funds that you have in a retirement plan. For example, if you leave your employer and transfer your 401(k) account into an individual retirement account (IRA), creditors generally cannot get access to those IRA funds even if you declare bankruptcy.Federal law does make an exception for family support and the division of property at divorce. A state court can award part or all of a participant's retirement benefit to the spouse, former spouse, child, or other dependent. The recipient named in the order is called the alternate payee. The court issues a specific court order, called a domestic relations order, which can be in the form of a state court judgment, decree or order, or court approval of a property settlement agreement. The order must relate to child support, alimony, or marital property rights, and must be made under state domestic relations law. The plan administrator determines if the order is a qualified domestic relations order (QDRO) under the plan's procedures and then notifies the participant and the alternate payee. If the participant is still employed, a QDRO can require payment to the alternate payee to begin on or after the participant's earliest possible retirement age available under the plan. These rules apply to both defined benefit and defined contribution plans. (see QDROs)


Contact a Los Angeles Divorce Attorney at Law Offices of Warren R. Shiell

Call for a free consultation now 310.247.9913.

Divorce and Money

Los Angeles Family Law Attorney

Divorce Lawyers|Attorneys Los Angeles, Beverly Hills

California Prenuptial, Prenups 


New form required for divorced spouses to get military pension survivor benefit

 

Military family law guru Mark Sullivan of Raleigh tipped me off about this. This new form will become the only way to elect military survivor benefit coverage in a divorce. Its use is mandatory after Sept. 30, 2008 but it can be used even before that. The form, like the informal letters that were used for this in the past, is subject to a one-year deadline, which Mark describes as follows:



Transferring IRAS in a Divorce

IRAs and Divorce From Divorce Magazine

If you're transferring your interest in an IRA to your (former) spouse, you could get hit with extra tax and penalties if the transfer is not made correctly. Here's the right way -- and a couple examples of the wrong way -- to transfer these funds.

By Bruce L. Richman, CPA, ABV, CVA

We have all heard about "substance over form", but when it comes to transferring IRAs, it is "form over substance". The IRS is very clear that an early distribution from an IRA is subject to a 10% penalty as provided in Section 72(t) of the Internal Revenue Code ("IRC"). The IRC also provides that any amount distributed from an IRA "...shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under IRC Section 72". However, the IRC does provide for an exception -- which is contained in IRC Section 408(d)(6) -- whereby a transfer of an individual's interest in an IRA to his/her spouse or former spouse under a divorce or separation instrument is not considered a taxable transfer. This exception only applies if the following two requirements are met:

(a) there must be a transfer of the IRA participant's interest in the IRA to his/her spouse or former spouse; and
(b) such transfer must have been made under a divorce or separation instrument.

It is important to note that IRC Section 408(d)(6) deals with the "transfer" of an individual's interest in an IRA and does not deal with "distributions" from an IRA.

If, as part of the divorce or legal separation, you are (or your client is) required to transfer some or all of the assets in a traditional IRA to your spouse or former spouse, there are two commonly used methods to effect this transfer. IRS Publication 590 describes the two methods for transferring an interest in an IRA tax-free as follows:

(a) "Change the name on the IRA" -- if you are transferring all of the assets of the IRA, you can simply make the transfer by changing the name on the IRA from your name to the name of your spouse or former spouse.
(b) "Direct transfer" -- simply direct the trustee of your traditional IRA to transfer specific assets to the trustee of a new or existing IRA set up in the name of your spouse or former spouse.

This appears to be straightforward, but these simple rules often are not followed, and problems arise. This is illustrated in two recent tax cases, which demonstrate the importance of "form over substance". In Jones v. Commissioner TC Memo 2000-219, the taxpayer had an IRA. In 1992, the taxpayer and his wife filed for divorce. In April of 1994, the husband and wife drafted a marital settlement agreement requiring the husband to transfer his IRA to his wife as part of the property settlement. In May of 1994, the husband cashed out his IRA (he received a check for $68,000) and endorsed the check he received to his wife. The IRS sought to have the $68,000 included in the taxpayer's income for 1994. It was the Court's opinion that the endorsement of the check to the wife was not a "transfer" of the husband's interest in the IRA, because his interest in the IRA was depleted at the time he withdrew the funds. It is important to note that the fact that the check for the IRA balance was endorsed rather than deposited into the husband's account did not affect the outcome of the case. The courts stated that the transfer of IRA assets by a distributee to a non-participant spouse does not constitute the "transfer" of an interest in the IRA under IRC Section 408(d)(6). The purpose of IRC Section 408(d)(6) was to offer a means to avoid having the interest transferred treated as a distribution. It does not permit the IRA participant to allocate to a non-participant spouse the tax burden of an actual distribution.

Following the same logic was the case of Bunney v. Commissioner 114 TC No. 17 (April 2000). The husband and wife, both residents of California, a community property state, were divorced in 1992. Per their divorce settlement, the husband's IRA, which was funded with contributions that were community property, was to be divided equally between the husband and wife. The husband withdrew the $125,000 balance of his IRA and deposited the proceeds into his money-market savings account. During the same year, he transferred $111,600 to his former spouse as part of divorce settlement. Mr. Bunney only reported $13,400 of the IRA distribution on his 1993 federal income tax return.

Just as in the Jones case, the main issue revolved around the question of whether the husband's gross income should include the distributions he received from his IRA. Again, the Court turned to the two requirements that must be fulfilled in order for the exception of IRC Section 408 (d) (6) to apply, and again the husband did not satisfy the first requirement calling for a 'transfer" of the IRA interest to the spouse. Mr. Bunney cashed out his IRA, deposited the funds into his money-market savings account, and then paid his former spouse some of the proceeds.

As demonstrated by these two cases, the simple "form over substance" is important in transferring an IRA tax free pursuant to a divorce or separation agreement. An easy way to avoid any potential problems is to have the actual transfer papers made available and incorporated into the divorce settlement. A mishap with the form of the transaction can have significant tax consequences.


Since 1980, Bruce Richman (CPA/ABV, CVA, CDFA™) has been actively involved in valuations, mergers and acquisitions and other financial and tax consulting matters. He is a Managing Director of Trenwith Valuation, LLC and until June 2004 was Partner in the Business Valuation Consulting Services Group for BDO Seidman, LLP.  In his current position, Mr. Richman is responsible for various valuation projects and consulting services in the United States and, for U.S. clients, internationally.    You can read about his firm in his Divorce Magazine profile or visit his website at www.trenwith.com/valuation/. or visit his website at .