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Some property division considerations in divorce


Often forgotten among practitioners is the fact that a qualified domestic relations order (QDRO) can be used for the purpose of satisfying child support, alimony, and arrears obligations. The QDRO can only provide for a one time lump sum of money per QDRO. This is the case for cash plans or defined contribution plans. The interesting point here is that with these disbursements tax ramifications will work against the payer spouse. Ordinarily this wouldn't be the case with child support payments as child support obligations do not ordinarily incur a tax penalty against the payer spouse.

If you wish to go after these funds you need to first have a valid court order granting you your alimony, child support, or arrears obligation. If you are dealing with arrears then get the arrears figure reduced to judgment. Then go on and prepare your QDRO. If the judge will sign of on your Order then submit your Order to the plan administrator. The employee spouse will receive a 1099 for the distribution.

If you are dealing with a defined benefit plan. You can prepare a QDRO and submit it against the plan to receive a monthly distribution from the defined benefit plan. You can use the QDRO for child support, alimony, or arrears. Keep in mind that you can't get at this money unless the employee spouse has already retired and thus receiving or eligible to receive pension benefits.

Be aware that many participants of PERS also receive deferred compensation plan in addition to the annuity granted under the PERS plan. This is tax deferred cash plan. At retirement the money is retrievable by the employee spouse. Often times this deferred comp plan is overlooked and not identified by counsel. Thus is an omitted asset issue. So when conducting discovery go deep to try to identify any potential deferred comp plan. As counsel you need to know that failure to discover these assets may be considered malpractice. Thus do your due diligence.

Remember that social security is never disable as it is controlled by federal law. Keep this in mind while dealing with an employee who is a PERS employee. The reason why I say this is because PERS employees don't receive social security benefits. Thus when you are considering division of assets be sure to take this into consideration. As the PERS employee spouse is going to get an unequal division of property at the divorce stage without an upward adjustment to make for an equal distribution. That being said, there is case law supporting the idea that social security income shouldn't be considered for purposes of property distribution or alimony.

Also keep in mind that if you are preparing a QDRO you need to consider cost of living adjustments. These cost of living adjustments are adjustments to the value of the retirement to compensate for cost of living adjustments resulting from inflation. Though these cost of living adjustments may be small they should still be taken into consideration.

In a defined contribution plan such as a 401k if the employee dies prior to the non-employee spouse the non-employee spouse gets paid out. If the employee spouse dies after the QDRO it will be irrelevant as the non-employee spouse will have already been paid out. If you are dealing with a defined benefit plan then upon application for retirement the employee has seven options to choose from with respect to future death benefits. Know that the employee can chose to not receive a death benefit at all. The benefit of this is that the monthly annuity will be higher as there is a premium attached to the death benefit. The other options all produce a benefit for survivors. The six death benefit options vary in how they distribute. Remember that if the death benefit is for 50% for a surviving spouse that she is only going to get her ½ interest in the 50% which is a 25% interest. So at first glance it may look better than it is.

If the parties are both still alive at retirement then the distribution will either be shared or a separate interest. The difference primarily is that with a shared interest distribution the parties will share the employee's interest month after month. The significance is that if the employee spouse dies then the non-employee spouse will no longer receive her or his benefits. Thus the separate interest method is preferable. If the non-employee spouse has a separate interest in the plan then the death of the employee spouse is of no significance as the payment stream will continue .

Categories: Family Law