Posted on September 29, 2009 by Sandra C. Fava

DIVIDE THOSE RETIREMENT ASSETS

Most people are overwhelmed during the process of a divorce.  Stress and emotions run high, there are the added time constraints of the court and the daunting tasks of discovery, court mandated appearances and either a trial or coming to a final resolution.  When the judge signs off on the final judgment of divorce a great weight can be lifted and its easy to feel that the process is over.

Oftentimes, this is not the case.  What has been referred to as 'loose ends' can easily be overlooked and forgotten.  A perfect example is the finalization and submission of Qualified Domestic Relations Order ("QDRO") to plan administrators for the division of qualified and some times non-qualified retirement plans and benefits.  I have previously blogged on this issue.  To read those entries, click here and here.

So why am I telling you about this all important often missed step of the process again? Recently the Appellate Division issued another unpublished decision addressing this topic.  To read the opinion, click here.  In this case, husband's pension took over 10 years to be divided by way of QDRO to wife.  The delay it appears was caused by each party's failure to respond.  However, the husband retired in 2004 and began receiving his retirement benefits.  Despite knowing the wife was entitled to 1/2 of his benefits or some amount close thereto, he failed to notify her of his retirement and failed to provide her with any payment for her right to share in this asset.

The wife filed enforcement motions to get the QDRO for the pension finalized and eventually requested that husband be ordered to pay her her share of the retirement benefits he received retroactive to the date he began receiving his payments.  The trial court granted her request.

The husband appealed this decision claiming that he should not be held responsible for the delay as the wife was at fault.  The Appellate Division affirmed the trial court's ruling finding 1) the husband made no effort to tell the wife that he'd retired and was receiving benefits; and 2) in the absence of a QDRO, the husband had an obligation to either pay the wife or set aside sufficient funds to pay her until the matter was resolved by the court. 

Specifically, the Appellate Division reiterated the finding of the trial court that the QDRO is a means to allow the pension company to pay the wife directly.  The mere fact that a QDRO had not been finalized at the time when the husband began receiving his benefits did not excuse him from his obligations under the Judgment of Divorce or the parties' Settlement Agreement.

It is established under the laws of NJ that a part of a pension legally or beneficially acquired by either party during a marriage is subject to division by way of equitable distribution.  ERISA  (Employment Retirement Income Security Act) was passed to establish uniform national standards for pension plans.  The Retirement Equity Act, passed in 1984 created a statutory exemption to the anti-alienation provisions of the IRS and ERISA and requires pension plan administrators to honor a QDRO issued by a court.  These changes allowed a direct distribution to the non-participating spouse. 

Lesson to be learned: Get your QDRO's done!
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Posted on August 21, 2009 by Eric S. Solotoff

FINDING CASH POST-DIVORCE IN A BAD ECONOMY

It would be an understatement to say that these are trying financial times.  Real estate values are done, retirement assets are down, stock accounts are down, many people have lost jobs and many other feel lucky to still have their job, albeit earning less than they once did. 

In the past, the proceeds of the sale of of the marital home was a solution to many post-divorce cash flow issues, including down payments for new homes, getting a new car and paying the lawyers and experts in a case.  With the decline in property values, many people are facing situations with negative equity or much less equity to divide. 

What I learned in the last few years, and what I have found that many attorney and many accountants do not know is that a spouse receiving a share of the other spouses retirement account in divorce (IRAs and 401ks) can avoid the early withdrawal penalty if they take with withdrawal "incident to a divorce."  Many people think  and I used to be one of them, that if you liquidated retirements assets, you had to pay the 10% penalty. 

However, provisions of Internal Revenue Code sections 72, 401 & 408 (as well as the Treasury Regulations), allow a person to avoid the penalty if the take the cash at the time of the transfer.  If the transfer is in to an IRA account and then they try to get the cash, there will be penalty.  The tax in either instance still has to be paid. 

I suggest that parties can be creative with this to get money out for both of them, if they are cooperative, transfer the money to the non-tiled spouse which will then be divided, and they agree on a fair division of the taxes. 

In any event, if the rainy day is at the end of the divorce, retirement assets to be transferred incident to a divorce could mean money for that rainy day.

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Posted on August 17, 2009 by Jennifer Weisberg Millner

RETIREMENT FUNDS AS A SOURCE OF INCOME

 We have all heard how the current economy has been taking its toll on the economics of divorce. Where home equity and stock accounts was once a source income, I have had many clients look to their retirements as a resource for liquid income post divorce.  Many times, the issue of access to retirement funds comes up in the negotiation of a divorce settlement. As an example, if the marital home has fallen in value, a spouse may seek to liquidate a retirement account in order to have enough for a down payment for a new house post divorce.

 

In the case of a 401(k) or IRA, this may be a realistic source of funds as long as the consequences of taking an early withdrawal, including penalties are taken into consideration. However, many people are under the mistaken impression that as long as you are willing to pay the penalty, the money can be taken out by a former spouse at any time. Such is not necessarily the case.

Many, if not most traditional pension plans provide that there can be no withdrawal until the stated retirement age in the pension plan itself. So, even if you know that you will have funds at retirement age, you may not be able to spend them until a time in the future. Others provide that a former spouse cannot receive the benefit until the time the time that your former spouse begins to receive benefits, or at least becomes entitled to benefits.

 

Seem obvious? Well, in recent weeks I have had no less than three clients who I did not represent in the divorce or the negotiation of the settlement agreement who thought that they would be able to access funds immediately, and in one case, negotiated a lower amount based upon that assumption. Lesson to be learned? Find out about the rules of your soon to be ex’s retirement and your rights as a former spouse at the beginning of the divorce process. This can easily be done by an attorney through the use of a subpoena. Find out now what your rights are and when those rights come into being to access the money post divorce so you can make an informed decision in the negotiation process.    If the early liquidation of the asset is likely, make it a part of the negotiations. And don’t forget the costs associated with the early withdrawal of any account. A $100,000 401(k) is not really worth $100,000 after consideration of taxes and penalties.

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