Hernsberger QDRO Law May 2019

May 2019

QDRO Law Experts for Your Law Firm

The Variables of Divorce

No doubt, QDROs can be complicated. From state requirements to individual account requirements, on top of all the divorce proceedings, “complicated” can be an understatement. Consider the following three examples. A lawyer is working on a divorce case for a military couple. The husband served in the Air Force. The wife was not a service member. The judge awards the wife 50 percent of the husband’s military retirement plan. The lawyer then files the QDRO with the plan administrator, but the plan administrator rejects the QDRO. This is a sequence of events we see often. The lawyer is left scratching his head. Was the QDRO filled out improperly? Was it filed incorrectly? We get many calls from attorneys and others who have QDRO rejections. Many attorneys may not be aware of QDRO specifics as they relate to each type of retirement account. In this case, they may have overlooked the 10/10 rule stating that the non-serving spouse may only be entitled to a smaller portion of the retirement, not 50 percent. The 10/10 rule requires the couple to be married for 10 years or more, and the spouse who served must have been active duty military for 10 or more years. Finally, those 10 years must overlap the marriage. The couple won’t meet the guidelines if, for instance, they have only been married eight years and the serving spouse was active in the military for only the first Any number of reasons may explain why the QDRO was rejected, but we can narrow it down.

“With so many variables in play, one small mistake or one question not asked can be incredibly costly.”

four years of that marriage. This is a very surface-level explanation of the 10/10 rule. Many other technicalities make these situations difficult to resolve.

Another common challenge involves the 401(k) during a divorce. One spouse may be awarded 50 percent of the 401(k), but the submitted QDRO reflecting that outcome can then be rejected. Why? When one spouse contributed to the 401(k) before marriage and will continue contributing to that 401(k) following the divorce, the “50 percent” of the 401(k) is less straightforward. When the QDRO is submitted, a plan administrator needs to see calculations that reflect the length of the marriage as it relates to the length and amount of contributions. In some divorces, yes, the 401(k) may be split 50-50, but the account will be distributed equitably based on specific QDRO calculations. Pensions can also be very complicated. A judge may award 50 percent of a monthly pension to the wife, but if the account is empty, the pension is only a promise to be paid. Alternatively, the wife is awarded $100,000 out of the pension. These are just three examples of many possibilities which highlight the need to understand various negotiating terms to create a successful QDRO submission. With so many variables at play, one small mistake or one question not asked can be incredibly costly.

–Judge Stephen Hernsberger

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How Being Open to Growth Leads to Success

The Power of ‘Mindset’

For decades, Dr. Carol S. Dweck studied the phenomena of success. How is it that some people are able to grow their business, stay fit, or achieve their personal goals while others in similar situations stall out? “Mindset” is Dr. Dweck’s answer to this question. Subtitled “The New Psychology of Success,” this book chronicles the Stanford psychologist’s findings, which suggest an inseparable link between belief and achievement. According to Dr. Dweck, people tend to think about the challenges in front of them in one of two ways. They either have a “fixed” mindset — believing that their talents and abilities are static, intrinsic properties of who they

If you’ve ever said “I’m just not good at math” or “I’m not a natural leader,” you’ve fallen into the fixed mindset trap. If you believe there’s nothing you can do to change your circumstances, you’ll never strive to improve them. The same is true of positive fixed opinions of yourself. Dr. Dweck points out that those who believe themselves to be “a great boss” or “an amazing athlete” are also doing themselves a disservice. Once you think your skills are tied to who you are as a person, you’ll avoid challenging them for fear they might be found wanting. This leads your talents to atrophy as you seek detours rather than facing challenges head-on. Dr. Dweck argues that, instead of falling victim to the pessimism and self-delusion that defines fixed mindset thinking, we need to recognize that the path to success lies in open-minded perseverance. “A person’s true potential is unknown (and unknowable),” she says. “It’s impossible to foresee what can be accomplished with years of passion, toil, and training.” Not only does “Mindset” drive this point home with well- documented experiments and studies, but it also provides a workshop to help people break free of their fixed mindset and find success.

are — or a “growth” mindset — believing they can improve every aspect of themselves with practice and perseverance. Those who approach life’s hurdles as an opportunity for growth are the ones who find long-term success.

A Dirty Little Secret

A QDRO CONVERSATION

“I feel the same way,” he assured her. “I’ve often thought that QDROs are God’s curse on divorce lawyers. I always hesitate whenever I take on a new case with a retirement. It makes me uncomfortable.”

Her cellphone was glued to her ear when I first noticed her.

“I don’t knowwhat to do!” she said. “Find out! Call someone!”

Finally, she gave up with a sigh, saying, “Do the best you can. I’ll be back in the office on Friday.”

I wasn’t eavesdropping. She was no more than 5 feet away, and everyone within 50 feet heard her.

“God, I hate QDROs.” There, she said it, finally finding the voice to admit how she really felt. I could tell that it bubbled up from somewhere deep inside her. I think she said it before she even realized what she was saying. Her catharsis was immediate. You could see it by the look on her face, the straightening of her shoulders, and her relaxed breathing. The older gentleman saw it, too. With a sigh of relief, he admitted “Honestly, you’re not alone. I know half the lawyers at this seminar. Every single one of them hates QDROs just like you and just like me. I wish it wasn’t such a dirty little secret.”

We were stranded in a sea of divorce lawyers. I didn’t count them, but there were at least 500 of us outside that meeting room — maybe more — and the lobby was clearly designed for no more than 300. Oxygen was sparse. Good cheer even sparser. We were plowing through day three of a four-day seminar, and we all needed coffee at the midmorning break.

I watched out of the corner of my eye as she pocketed her phone, and the older gentleman next to her leaned in with a calming voice.

“It never fails, does it? Every time we go to a family law seminar, something blows up back home.”

“I just want to scream,” she said half to him and half to herself. “This is the third time they’ve rejected my QDRO. I don’t understand what they want. The judge said she gets half. What’s so hard about that? Why don’t they just give her half?”

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SUDOKU

QDRO Case Studies: 401(K) THEFT

The judge awarded Amy Palmer $35,167 from her husband’s 401(k) at Hewlett Packard (HP). Amy, now a single mother of three, really needed the money, and she needed it quickly.

Amy’s divorce lawyer waited for six months to send the 401(k) qualified domestic relations order (QDRO) to HP for approval. He should have sent it the same day the QDROwas signed.

Imagine everyone’s surprise when the plan administrator rejected the QDRO because there was no money in the account! Amy’s lawyer sent the QDRO to HP in six months, and Amy’s ex- husband had emptied the account much more quickly. The Goals Recover the $35,167 in cash (plus interest and attorney’s fees) that Amy’s ex-husband removed from the 401(k) after the divorce was final but before her attorney submitted the QDRO to the plan administrator. The Approach First, we determined who was legally responsible for Amy’s damages. Her ex-husband was responsible for stealing her money, but her divorce lawyer also bore some responsibility. By law, a 401(k) must immediately place a hold on all funds in an account when it receives a proposed QDRO. If the lawyer had promptly submitted a QDRO, the funds would have been frozen and Amy’s husband could not have stolen her money. The legal principle is known as a “but for causation.” We decided to pursue Amy’s ex-husband and her divorce attorney simultaneously. Though Amy could only recover her damages once, she was more likely to recover all of her damages if she had two sources to collect from. If one defendant could only pay some, or even none, of her damages, she could look to the other defendant for the sum to be made whole. The legal principle is known as “joint and several liability.”

Be Inspired

We filed a lawsuit against Amy’s ex-husband and had him served with citation.

We prepared but did not file a separate lawsuit against Amy’s divorce lawyer. Before filing, I requested a private meeting with the lawyer in her Dallas office. At that meeting, I explained the lawyer’s legal vulnerability and showed her the legal malpractice petition we were prepared to file. After further discussion, the attorney agreed to cooperate and negotiate her financial responsibility with us without the necessity of filing suit. We agreed to look to the ex-husband for satisfaction of Amy’s damages first.

Amy’s husband hired an attorney and responded to the lawsuit.

We began three-party negotiations between representatives for Amy (us), Amy’s ex-husband, and Amy’s former divorce lawyer.

The Results Amy received all of her $35,167 through settlement negotiations between the three parties. Amy also recovered all of her attorneys fees as part of the settlement. We were able to make our representation more affordable for Amy by using a hybrid hourly/contingency-fee model. She paid all costs and reduced attorneys fees in an advance retainer. She continued to deposit funds into her retainer account as the negotiations progressed. In the end, Amy recovered all of her attorneys fees and costs in addition to the $35,167. Our resolution of her problem did not cost Amy a penny.

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INSIDE This Issue

The Variables of Divorce PAGE 1

How Being Open to Growth Leads to Success A QDRO Conversation PAGE 2 A Look at a Case of 401(k) Theft PAGE 3

Take a Break PAGE 3

The Price You Pay for Stealing a Penguin PAGE 4

This Is What Happens When You Steal a Protected Animal ANIMAL THEFT AND TRESPASSING DON’T GO UNNOTICED

You wake up slowly, still groggy from a raucous night out with your friends. As you look around, taking stock of your surroundings, you see the other inhabitants: a desk, your shoes, a penguin … a penguin?! While footage confirms that two youngWelshmen stole Dirk the penguin from his SeaWorld Australia home, the men had little memory of the night’s misadventures the next morning — until they saw Dirk waddling around their rented apartment.

concerned passers-by called authorities, and SeaWorld workers came to rescue Dirk and bring him back to his family. Dirk returned unharmed to his partner, Peaches, but his kidnappers weren’t so lucky. Once a Facebook post recounting their misdeeds made its rounds, police traced the crime back to the twoWelshmen. Theywere charged with trespassing, stealing, and keeping a protected animal, and there was no shortage of public shaming as their crime circulated the internet. Taking note of their letter of apology and admissions of guilt and regret, the judge enforced a heavy fine for the crime in lieu of jail time. Charges for kidnapping a protected animal vary from state to state, but the Endangered Species Act ensures perpetrators face harsh penalties, including fines and maximum sentences. The Animal Legal Defense Fund also provides free legal assistance and training to help protect animals from harm.

The night before, after imbibing a hefty amount during their vacation in Australia, the men got the

harebrained idea to break into SeaWorld and swimwith the dolphins. After getting inside, video footage captured them stripping down to their skivvies and running around the facility — until they spotted the penguin enclosure. “Look at them!” one said. Distracted from their original plan, they made their way to the penguins, grabbed one, and left. Dirk, the 7-year-old fairy penguin (the smallest species of penguin), was bred in captivity and had never left his enclosure. The next morning, realizing what they’d done, the three young men panicked and released Dirk into a nearby canal. But Dirk’s misfortunes weren’t quite over. He was chased out of the canal by what onlookers believe was a shark, only to be chased back in by a surprised dog. Fortunately,

Be careful on your next night out, and please, enjoywildlife without stealing it!

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