Hernsberger QDRO Law June 2019
June 2019
QDRO Law Experts for Your Law Firm
Negotiating Retirement Division 2 THINGS YOU NEED TO KNOW
An important key to success in negotiating the division of retirement in divorce is knowing what the plan administrator will and will not accept. It seems so obvious, but you would be surprised. People miss seemingly obvious details during negotiations. This month, I want to share two tips that will help make you a better negotiator.
non-qualified. If the parties wish to divide the account accrued between two dates, such as the date of marriage and date of divorce, they must:
• Obtain the necessary plan account information from either their own records or those of the plan’s record-keeper
• Calculate the specific dollar amount of the alternate payee’s award, adjusting for earnings if applicable
Tip No. 1: Before you negotiate, know how the 401(k) plan divides community property.
• Submit an order that states the award as a flat dollar amount as calculated by the parties .”
It seems simple enough to award just the community property portion of a 401(k). All you have to do is state, “Wife is awarded 50 percent of the community property portion of the ABC Widget Company 401(k) profit-sharing and investment plan.” Right? Sadly, it’s not so easy. In fact, it’s usually a trap. Consider how most attorneys calculate the community property portion of a 401(k). They take the value of the 401(k) account on the date of divorce and subtract the value of the 401(k) account on the date of marriage. The result is the growth in the plan during the marriage, which is typically treated as the community property portion of the 401(k). We’ll ignore, for the moment, that some of that growth is almost certainly separate property. The unfortunate reality is that most plan administrators will no longer calculate the value of the 401(k) between two dates. Most plan administrators require the QDRO to state ONE dollar amount or percentage as of ONE date .
Key Takeaway: When dividing the community property of a 401(k), don’t assume the plan administrator will calculate the value of the community property. Find out before you negotiate. ERISA requires all 401(k) retirement plans to provide written procedures, which describe, among other things, whether they will calculate the value of a 401(k) between two dates. Get the written procedures before you negotiate.
Tip No. 2: Know the difference between self-only annuity, gross annuity, and net annuity.
Both federal civil service retirement plans (FERS and CSRS) calculate the annuity to the former spouse in one of three ways. Read carefully, because the terms “gross” and “net” do not mean what you think they mean.
A typical FERS COAP form will typically state, “Wife is awarded 50 percent of a self-only/ gross/net annuity (choose one) from husband’s employee annuity.” Here’s what they mean.
• A SELF-ONLY ANNUITY is the entire monthly annuity with no deductions for any reason. If you want either party to pay 100 percent of the surviving spouse annuity, you should select this option.
• A GROSS ANNUITY is the entire monthly annuity minus the cost of the survivor annuity premium. There are no other deductions.
Here are instructions taken directly from the written QDRO procedures of a well-known third-party administrator:
• A NET ANNUITY means the amount of monthly annuity payable after deducting from the “self-only” annuity the following amounts:
“The order must state a SINGLE valuation date to be used for determining the alternate payee’s award. Any order which defines the alternate payee’s award as a portion of the participant’s account balance between two dates will be
• Cost of the survivor annuity premium, if any • Amounts owed by the retiree to the United States, if any
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A Road Map to Closing Deals Business majors and longtime entrepreneurs will be familiar with this work. And in an age when many shiny new theories on leadership and personal development come out every year, it’s refreshing to revisit a classic that has stood the test of time. Thirty-five years after its original publication, “Influence: The Psychology to past decisions; and “scarcity,” our tendency to assign value to things based on their rarity. While these may sound like surface-level business concepts, the way Dr. Cialdini uses these principles as a launching point gives “Influence” value.
'Influence'
of Persuasion” should still be required reading for marketers, small-business owners, and anyone else looking to improve their negotiation skills. Written by Dr. Robert Cialdini, “Influence” explores why people say yes. A professor of business and psychology, Dr. Cialdini is uniquely qualified to tackle this question, combining scientific data with practical applications. “Influence” is still a subject of praise, with marketing research groups and journals of psychology lauding the book as a “proverbial gold mine.” You don’t have to get too far into “Influence” to see why. Dr. Cialdini lays out six “universal principles” of the human psyche. These include “reciprocity,” our tendency to want to return perceived kindness or concessions; “commitment and consistency,” our tendency to cling
With each principle, the author dives into examples of how these psychological elements can be used by you or against you in any negotiation. Take “commitment and consistency,” for example. If you are able to get a person to agree with you on several small points, you lay the groundwork for them to agree with you in the future. Conversely, you can be more alert when people try to use this tactic on you. One of the most powerful results of reading “Influence” is that it helps you recognize behaviors you yourself were unaware of. Indeed, that’s the whole underlying thesis of Dr. Cialdini’s work: As social creatures, we all have habitual behaviors geared towards finding common ground with others. Once you are aware of these behaviors, you’ll begin to see conversations and negotiations in a whole new light.
QDRO Case Studies: An Abusive Relationship and No QDRO Pamela Bishop divorced her physically abusive husband. Now, she and her children are safe. That’s a good thing. Her divorce lawyer convinced the judge to award her 60 percent of her husband’s pension. She slept better at night knowing there would be a little security when she hit retirement age. Except the lawyer never prepared a QDRO for the pension! As a result, Pamela was never going to see that money. Her lawyer closed his file when the judge signed the decree. That was it. There simply was no pension QDRO. No money. Call it malpractice for the lawyer and financial ruin for Pamela. So, she came to us. The Goal Our objective was to enable Pamela Bishop to receive a monthly benefit from her ex-husband’s pension (for the rest of her life) when he retired, or earlier if Pamela elected to begin receiving benefits before her ex-husband retired. The Approach
We handled every step of the QDRO approval process for Pamela. She was not required to do anything except approve the QDRO throughout the entire process. The first major step was to prepare the QDRO in accordance with Texas law, federal law (ERISA), and the specific requirements of the pension plan. The terms of the QDRO were identical to the terms of division contained in the divorce decree. We filed a petition in the same court that granted the divorce, asking the judge to sign the QDRO in compliance with Texas Family Code, Section 9.102. Pamela’s ex- husband was served with citation in compliance with said code. Fortunately, Pamela’s ex-husband agreed to cooperate and willingly signed the QDRO.
Fortunately, Pamela’s ex-husband had not retired or tampered with the retirement money. The solution was to prepare the QDRO and have it signed and approved ASAP.
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SUDOKU
• Amounts deducted for health benefit premiums, if any • Amounts deducted for life insurance premiums, if any • Amounts deducted for Medicare premiums, if any • Amounts withheld for federal income tax purposes, if any • Amounts withheld for state income tax purposes, if any
Key Takeaway: Before you begin negotiating, know which calculation method best accomplishes your client’s goals. Here are some other tips to keep in mind.
• Net annuity is rarely used.
• Use gross annuity if you want each party to pay a portion of the survivor annuity premium.
• Use self-only annuity if no survivor annuity is awarded to the former spouse.
We set a hearing on our request for entry of the QDRO and appeared on behalf of Pamela at the hearing. Pamela was not required to attend. The judge signed the QDRO and the original was filed with the district clerk. Afterward, we obtained a certified copy of the QDRO from the district clerk and mailed it to the plan administrator for approval. Approximately five weeks later, the plan administrator sent Pamela a letter approving the QDRO and explaining her rights to distribution of the funds when her ex-husband retired or turned 65. The Results Pamela Bishop was properly placed in a legal position to receive a monthly benefit from her ex-husband’s pension for the rest of her life. If Pamela waits until her ex-husband turns 65, it is estimated she will receive $1,278 per month. We considered the idea of approaching Pamela’s divorce lawyer. In the end, we decided not to. He should have prepared and submitted the QDRO to the plan administrator at the time of divorce. His failure to do so meets the classic definition of professional negligence. However, Pamela did not suffer significant financial damages as a result of her attorney’s negligence. Her husband has not yet retired and was not aged 65 at the time of the filing. Since Pamela is not entitled to receive any monthly benefits yet, she has not missed any. Pamela’s total cost for fixing her QDRO problemwas $1,500 plus court costs for filing the petition and having her ex-husband served. That’s only a little more than one monthly benefit she will receive. Want to learn more? We are building the world’s largest FREE keyword-searchable knowledge database dedicated to QDROs and dividing retirement in divorce. This database is full of information and tips just like these. Simply point your web browser to HernsbergerLawFirm.com to begin your search today. –Judge Stephen Hernsberger • Use self-only annuity if you want the former spouse to pay 100 percent of the survivor annuity premium AND state that the amount of reduction of the employee annuity necessary to provide the survivor annuity premium should be taken entirely from the former spouse’s award.
Be Inspired
Hernsberger Law fixed the divorce attorney’s mistake before Pamela suffered any damages. That’s good for Pamela and her divorce lawyer (and he never knew).
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INSIDE This Issue
Tips for Negotiating Retirement Division PAGE 1
'Influence' and the Psychology of Yes A Case Study: An Abusive Relationship PAGE 2
Take a Break PAGE 3
Crazy Lawsuits Surrounding the Dearly Departed PAGE 4
Lawsuits From Beyond LET’S HOPE THERE’S A COURTROOM IN THE AFTERLIFE
Solemnly Spooked An unnamed New York resident — just what on earth is going on in New York? — claimed that the house they’d recently purchased was horribly and cripplingly haunted by unseen forces. The poltergeist was said to disrupt their daily activity, and the plaintiff was suing on the grounds that the home was notorious in the area for being haunted and had a reputation as such, therefore it should have been disclosed to the buyer before
We pride ourselves on being a country where everyone receives a fair trial. And while that’s not always the case, even the craziest claims still have to be heard in some capacity by a court of law. As you can imagine, this can result in plenty of spooky high jinks in the courtroom. Let’s take a look at some of the more baffling court cases in recent memory. Dead Man Talking In something straight out of a Coen brothers movie, a New York man had to sue The New York Times on three separate occasions to get them to stop reporting that he was dead. In all fairness, it
seemed like an honest mistake prolonged by the ineptitude of his public counsel and a whole lot of terrible coincidences all rolled into one. Juan Antonio Arias just so happened to share the same first and last name as one “Juan Arias” who had met his untimely demise. After it was reported in a Times article, the living Arias accidentally had his own date of birth and Social Security number added to the death certificate of his now deceased namesake in a terrible mix-up from the coroner. As a result, he sued on three occasions after his lawyer missed certain deadlines to turn in proper documents. Thankfully, the issue was resolved, but not before he had his credit cards and Medicaid revoked after appearing to be dead.
closing. They won. That’s right; the court ruled that the seller misled the plaintiff and should have disclosed the nature of this potentially harmful house. Shockingly enough, this type of thing is required to be disclosed when selling a house in New York. Well, at least a buyer will have peace of mind knowing that they got a sweet new pad and a ghoul for pennies on the dollar.
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