Author: Erwin Kratz

Federal Appeals Court Affirms QDRO Entered After Participant’s Death

A federal court of appeals has upheld a trial court’s determination that a deceased plan participant’s former spouse is entitled to part of the participant’s 401(k) plan benefit, even though the participant had remarried and the qualified domestic relations order (QDRO) assigning benefits to the former spouse was entered after the participant’s death. The case is Miletello v. R M R Mechanical, Incorporated, et al.

As part of a divorce settlement, the participant had agreed to assign to the former spouse the lesser of $500,000 or his entire 40(k) Plan account balance. The state court order (the “judgment of partition”) incorporating that assignment of benefits into the divorce decree was not entered until two days after the participant died in a plane crash, and a QDRO regarding the assignment was not issued until 15 months later. In the meantime, the participant’s surviving spouse filed suit in federal court, claiming that she was entitled to the participant’s entire 401(k) benefit. The trial court rejected her claim, and upheld the former spouse’s right to the assigned benefit. The surviving spouse appealed, arguing that the QDRO was untimely because it was not issued within the 18-month window for determining whether an order is a QDRO and was issued after the participant’s death.

The Fifth Circuit Court of Appeals dismissed the first objection, noting that the QDRO was issued within 18 months of the judgment of partition, which the surviving spouse herself had identified as the event that should start the clock for determining any QDRO’s validity. Addressing the second objection, the court noted that Congress had amended ERISA to clarify that a QDRO will not fail based solely on when it is issued. DOL regulations also clarify that QDROs may be issued after the participant’s death, even if no order was issued before the participant’s death. Consequently, the QDRO was enforceable.

Analysis: A 401(k) plan participant’s death results in an automatic benefit to a surviving spouse to the extent that the participant was vested at the time of death. A post-death QDRO, then, seems to present the plan with competing claims. In the past, some courts determined that unless the plan administrator had previous notice of the order, the surviving spouse’s rights vested upon the participant’s death, locking out the alternate payee. In other cases, the courts determined that the post-death order was a QDRO and awarded plan benefits to the alternate payee. This issue has been resolved, however, both in the DOL’s regulations and, as this case illustrates, in the courts. A post-death QDRO can award a frmer spouse benefits, to the detriment of the surviving spouse.

QDRO Webinar- Tips and Traps when Dividing Defined Contribution Plans: the Pre-Marital Money Problem and Offsetting Accounts

On March 15, 2018 Attorney Erwin Kratz presented a webinar which detailed practical approaches to solving the various complications that can arise when dividing defined contribution plan accounts, including approaches to dealing with the pre-marital money problem and opportunities presented when offsetting accounts against each other. In this Webinar we addressed:

  • Where and how to get an accurate account balance on the date of marriage (DOM) when faced with the pre-marital money problem
  • Adjusting the DOM balance for earnings through the end of the marital community, including how to estimate earnings on pre-marital money:
    • based on the way the account was invested on the date of marriage or on the date of division, or
    • using broad proxies (such as the S&P 500 index, target date retirement funds, and the DOL’s VFCP Online interest calculator)
  • How to determine which account your client is best off taking and which they are best off giving away when offsetting the balance in one account against another.

QDRO Webinar- Dividing Military Retired Pay After the 2017 NDAA Amendments: Is Van Loan Dead?

On November 9, 2017 attorney Erwin Kratz presented a webinar detailing the various challenges in dividing military retired pay after the 2017 NDAA Amendments, especially in relation to the commonly used Van Loan formula.

The 2017 National Defense Authorization Act changed the definition of “disposable retired pay” in 10 U.S.C. 1408(a)(4) in a way that requires use of monthly retired pay as of the date of divorce, rather than as of retirement, for purposes of dividing military retired pay.

This webinar covered:

  • Why (and how) the NDAA modifies, but does not completely kill, the Van Loan formula when dividing military retired pay
  • Issues particular to the following situations:
    • Pre-retirement v. post-retirement divorce
    • Pre-marital service v. no pre-marital service
    • The Former Spouse will get less than 50% of the total disposable retired pay
    • The Member entered service before v. after 9/1/1980
    • Reserve v. Active duty retirement
    • Promotions made within 3 years of the date of service in the divorce

A recording of the webinar is embedded below.

Understand Retirement Plan Differences When Dividing Retirement Benefits

Arizona’s QDRO Practice recently published an article titled  Understand Retirement Plan Differences When Dividing Retirement Benefits  in the Arizona Bar’s Summer 2017 issue of Family Law News.

The article explains how it is critical to understand the features of each retirement benefit, to can get your fair share of this important community asset. The first step is to correctly identify the type of retirement plans involved. The article details issues to consider when dividing benefits in the three broad types of retirement plans-

  • Defined Contribution Plans (Both private and governmental)
  • Private Defined Benefit Plans
  • Government Defined Benefits Plans

Click Here to read the article.

Register for Our Complimentary Webinar on November 9, 2017- Dividing Military Retired Pay After the 2017 NDAA Amendments: Is Van Loan Dead?

Arizona’s QDRO Practice is happy to offer family law attorneys a complimentary Webinar discussing the lessons learned thus far when dividing Military Retired Pay after the December 2016 amendments to the definition of disposable retired pay.

Dividing Military Retired Pay After the 2017 NDAA Amendments: Is Van Loan Dead?

Thursday, November 9, 2017

12 noon – 12:30 pm

The 2017 National Defense Authorization Act changed the definition of “disposable retired pay” in 10 U.S.C. 1408(a)(4) in a way that requires use of monthly retired pay as of the date of divorce, rather than as of retirement, for purposes of dividing military retired pay. This webinar will cover:

  • Why (and how) the NDAA modifies, but does not completely kill, the Van Loan formula when dividing military retired pay
  • Issues particular to the following situations:
    • Pre-retirement v. post-retirement divorce
    • Pre-marital service v. no pre-marital service
    • The Former Spouse will get less than 50% of the total disposable retired pay
    • The Member entered service before v. after 9/1/1980
    • Reserve v. Active duty retirement
    • Promotions made within 3 years of the date of service in the divorce

We will also provide sample decree and settlement agreement language you can use to address the division of military retired pay, taking account of the above issues.

This Webinar is powered by Zoom, a web conferencing service that enables you to participate on your computer or phone, anywhere you have an internet connection.

Registration is closed.
A recording of the webinar is below

Please note:
The State Bar of Arizona does not approve or accredit CLE activities for the Mandatory Continuing Legal Education requirement. This activity may qualify for up to 0.5 hours toward your annual CLE requirement for the State Bar of Arizona, including 0 hour(s) of professional responsibility.

Amendment to Definition of “Disposable Retired Pay” Impacts Military Divorces finalized after December 23, 2016

Section 641 of the National Defense Authorization Act for Fiscal Year 2017, amended the definition of “disposable retired pay” in 10 U.S.C. 1408(a)(4) in a way that significantly affects the division of military retirement benefits.

The change requires the use of the military member’s pay, rather than final retirement pay, for any division of disposable retired pay entered as part of a final decree of divorce, dissolution, annulment, or legal separation that becomes final after December 23, 2016.

The Statutory Revisions

The specific amendments to the definition of disposable retired pay are set forth below, with additions in red:

10 U.S.C. 1408(a)(4)

(A) The term “disposable retired pay” means the total monthly retired pay to which a member is entitled (as determined pursuant to subparagraph (B) less amounts which—

(i) are owed by that member to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay;

(ii) are deducted from the retired pay of such member as a result of forfeitures of retired pay ordered by a court-martial or as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38;

(iii) in the case of a member entitled to retired pay under chapter 61 of this title, are equal to the amount of retired pay of the member under that chapter computed using the percentage of the member’s disability on the date when the member was retired (or the date on which the member’s name was placed on the temporary disability retired list); or

(iv) are deducted because of an election under chapter 73 of this title to provide an annuity to a spouse or former spouse to whom payment of a portion of such member’s retired pay is being made pursuant to a court order under this section.

(B) For purposes of subparagraph (A), the total monthly retired pay to which a member is entitled shall be—

(i) the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the court order, as increased by

(ii) each cost-of-living adjustment that occurs under section 1401a(b) of this title between the time of the court order and the time of the member’s retirement using the adjustment provisions under that section applicable to the member upon retirement.

10 U.S.C. 1408(a)(2) provides in relevant part that “[t]he term ‘court order’ means a final decree of divorce, dissolution, annulment, or legal separation issued by a court, or a court ordered, ratified, or approved property settlement incident to such a decree…”

Effective Date

The amendment to the definition of disposable retired pay apply with respect to any division of property as part of a final decree of divorce, dissolution, annulment, or legal separation involving a member of the Armed Forces to which section 1408 of title 10, United States Code, applies that becomes final after December 23, 2016, which is the date of the enactment of the 2017 NDAA (i.e. the date the President signed it).

Implications, Unresolved Questions, Opportunities and Potential Traps

The most immediate implication of the amendment is that DFAS will calculate retired base pay as of the date of “the court order” when implementing a division of military retired pay pursuant to a final decree entered after December 23, 2016. This means that increases in base pay due to post divorce service and promotions will accrue solely to the benefit of the member.

Date of Division. Arizona law divides marital assets as of the Date of Service, not as of the date of divorce or the date of entry of the order dividing military retired pay. Applying the literal language of the statute, the member’s pay should be determined as of the date of the Decree, unless the Decree or a settlement agreement incorporated into the Decree specifies a different date (such as the date of service). However, it is not clear whether this could be done where the date of service is before December 23, 2016 and the final Decree is entered after that date.

Pre-marital service and pay grade. If not otherwise stated, the specified percentage of disposable retired pay awarded to the former spouse will weight pre-marital service equally with marital service. Attorneys representing the Former Spouse should consider whether any pre-marital service and pay grades should be under-weighted where the member received marital pay increases, applying the same principles that the amendment applies to post marriage service and pay.

 

 

Family law attorneys are encouraged to contact Arizona’s QDRO Practice to discuss the issues particular to their case. We can provide sample settlement agreement and decree language from which you can work to address the issues raised when dividing military retired pay.

Ex-Wife’s Delay in Pursuing a QDRO Cost Her a Share of Ex-Husband’s Pension Benefits

The recent case of Richardson-Roy, Marva Jane v. Abigail Johnson (2016, CA3) 2016 WL 4088732 in the Third Circuit Court highlights the importance of timely submitting your QDRO to the Court and to the Plan after your divorce.

In this case, the ex-wife’s attempt to institute a QDRO two months after the participant (her ex-husband) had died was denied by the plan administrator (Fidelity) several times.  The Plan Administrator (Fidelity) advised the ex-wife in writing that it had determined that the QDRO could not be qualified as drafted. The letter explained that the ex-husband’s benefit had terminated with his death and the post-retirement survivor annuity that had vested in the participant’s subsequent spouse could not be reassigned.  The lesson is to not delay getting your QDRO entered, or you might lose the benefit entirely.

In addition, in this case the ex wife was barred by the one-year statute of limitations from prosecuting an action for benefits under ERISA (which was her attempt to get around the denial of the QDRO). While ERISA does not have it’s own statue of limitations regarding benefits claims, federal courts can apply similar limitation periods in the relevant state to ascertain if the claim has been brought in a timely matter.  In this case, the Third Circuit court determined a one-year limitation period, referencing the Delaware law for employment disputes, applied.

The court determined that the ex-wife’s claim for benefits accrued when she was first notified by Fidelity on April 21, 2010 that her claim had been denied.  Even if one considered the ex-wife’s claim to accrue on January 17, 2013 (the date of Fidelity’s last letter confirming that her claim was denied), the ex-wife’s pro se action would still have been 2 months past the end of the limitations period, since her ERISA action was not filed until March 24, 2014.

Another Session Added to Web Conference CLE Series: “Tips and Traps When Dividing Retirement Benefits”

Registration is closed on the first three presentations in our web CLE conference “Tips and Traps When Dividing Retirement Benefits” on August 31, September 15 and September 30, as 8 participants have registered for each session. We are happy to have added a fourth presentation at noon on Friday, October 14, 2016. Attorneys can register for that session here.

This web conference will discuss tips and traps family law attorneys should be aware of when negotiating the division of retirement plan assets, including solutions to the unique challenges presented by:

  • The type of retirement plan you are dealing with – whether a defined contribution plan, defined benefit plan, private or governmental, tax qualified or non-qualified plan
  • Accounting for pre-marital account/benefit accumulations
  • The effect of post marital service and compensation increases
  • Accounting for outstanding loans in defined contribution plans
  • Avoiding surprises caused by delayed distribution provisions
  • Awarding pre-retirement death benefits
  • Awarding post retirement survivor benefits
  • Allocating the cost of providing survivor benefits

Registration is limited to no more than 8 attorneys. This size limit is deliberately intended to facilitate discussion among the attendees, so please bring your questions with you or email them to me before the conference so I can be sure we address them.

We will email all attendees an agenda and written materials before the conference. After the conference we will email all attendees a Certificate of Attendance.

Please note:
The State Bar of Arizona does not approve or accredit CLE activities for the Mandatory Continuing Legal Education requirement. This activity may qualify for up to 1.0 hours toward your annual CLE requirement for the State Bar of Arizona, including 0 hour(s) of professional responsibility.

Register for the CLE Web Conference

Gray divorce can drag both parties into the red

Interesting article discussing the financial perils of “gray” divorce, particularly for the less financially-literate spouse.  The big lessons here, if you are contemplating divorce and there are significant retirement assets involved, are:

(1) hire a good divorce lawyer, who knows how to locate and negotiate the division of retirement and other financial assets; and

(2) get a good financial adviser to guide you so that you make the most of the retirement assets you get in your divorce.

If you need help in either respect, call us for a referral.