Hernsberger QDRO Law July 2019

July 2019

QDRO Law Experts for Your Law Firm


“Why does the QDRO say the loans are to be included?”

Last year, he borrowed $20,000 from the account. Immediately, a new asset worth $20,000 was created that we’ll call the “loan asset.” To fund the loan, the 401(k) account took $20,000 from the “investment asset” and loaned it to the husband. As a result, the value of the investment asset went down from $100,000 to $80,000.

We recently prepared a 401(k) QDRO for a family law attorney in Houston. Five minutes after we emailed her the draft, she called me on my personal cellphone number, which I provide to all of our attorney clients. “My client will go ballistic when she sees this. Instead of going to the medical conference in Phoenix, that SOB pulled money from his 401(k) and took a nurse to the ARIA in Vegas for a week. There’s no way she’ll pay for any of that loan!” The attorney incorrectly believed that the language “including the loan in the QDRO” meant that the nonemployee spouse was being ordered to repay all or a portion of the loan.

After the loan, it looked like this:

Total 401K Account = [investment asset $80,000] + [Loan Asset $20,000]

“The Decree should state whether loans are to be INCLUDED or EXCLUDED.”

Shortly thereafter, the parties decided to get a divorce and agreed that the wife would receive 50% of the 401(k). But what does that mean?

Is the wife to receive 50% of the total 401(k) account (which INCLUDES both the investment asset and the loan asset)? If so, then the QDRO should INCLUDE the value of the loan. In our example, if the loan asset is included in the calculation, the plan will divide $100,000. The wife would receive $50,000 from the investment asset, and the husband would keep $30,000 from the investment asset plus the $20,000 loan asset. The husband would continue to repay the loan by payroll deduction. As he did so, the value of his investment asset would increase and the value of the loan asset would decrease. Are the parties to be equally responsible for the loan? If so, then the QDRO should divide only the investment asset. The loan asset should be EXCLUDED from the calculation. In our example, if the loan value is excluded in the calculation, the plan will divide $80,000 (just the investment asset). The wife would receive $40,000 from the investment asset. The husband would keep $40,000 from the investment asset and continue to repay the $20,000 loan by payroll deduction. However, notice that his soon-to-be ex-wife has contributed to the repayment of the loan by taking $10,000 less from the investment asset.

It’s counterintuitive, but just the opposite is true.

I tried to explain to her that “including” the loan is how we ensure that her client does not pay for the loan. “I just don’t get it,” she said after my third attempt. “You sound like Abbott and Costello. Who’s on first?”

So, I’ll try again.

The husband has a 401(k) with a total value of $100,000. Until last year, all of the money was invested in various mutual funds, and the account value fluctuated daily with the market. For our purposes, we’ll call that the “investment asset.”

I hope this clears up the language used in the QDRO.

–Judge Stephen Hernsberger

It looked like this:

Total 401K Account = [investment asset $100,000]

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Learn How to Get Your Message Across

‘Fierce Conversations’

So often, we talk to our friends, coworkers, and loved ones without actually saying anything. We’ll beat around the bush on important subjects or hesitate to bring up sensitive matters. Global business coach and best- selling author Susan Scott has set out to change that. In her book “Fierce Conversations,” Scott argues that the key to get more out of our personal and professional relationships is to learn to lower our barriers and convey our message honestly. “Fierce Conversations” is one of those works born out of a simple idea with big implications. As the author explains it, “While no single conversation is guaranteed to change the trajectory of a career, a company, a relationship, or a life, any single conversation can.” By having the communication skills necessary to create lasting bonds, handle strong emotions, and overcome barriers, you’ll be prepared when crucial conversations present themselves.

with “aggressive.” However, as a master of meaningful communication, Scott has found that it’s important not to force emotions one way or the other. As she observes, “If your behavior contradicts your values, your body knows.” Instead of relying on fake bravado or false modesty, the author argues it’s better that the bravery be genuine. Breaking down those social barriers to be authentic in our conversations takes true ferocity. Scott does more than simply explain why frank and honest communication is important; she gives readers the tools to get there. Having spent years as a business coach, and now as the head of a firm that trains CEOs around the globe, Scott is well-versed in the art of teaching exercises. “Fierce Conversations” is brimming with action items, tactics, and tailor-made examples of how to communicate in every situation, from board meetings to parenting. If you’re someone who likes concrete guides over vague concepts, this book will pleasantly surprise you.

Those who tend to judge a book by its cover may make the mistake of associating the word “fierce”

QDRO Case Studies

An Unexpected Phone Call

Imagine the look on Judge Anthony Conrad Bellchamp’s face at his retirement party: His wife of 15 years pulls him aside and says in a hushed voice, “Judith (Judge Bellchamp’s ex-wife) called. She sends her regrets that she can’t attend the retirement party. She also wanted to tell you that she applied for your Texas County and District Retirement System (TCDRS) retirement.” It’s a nightmare, but you’re not dreaming. Judge Bellchamp’s wife continues: “She said she gets it all. Is that true? Wait. There’s more. She said she gets all of the ERS (Employees Retirement System of Texas) retirement too. And, apparently, you named her irrevocable beneficiary for every penny in both retirements.” The Goals The first goal is to recover that portion of Judge Bellchamp’s retirement that he earned after the divorce. The second goal is to enable Judge Bellchamp to name his current wife as the beneficiary for retirement that he actually owned. The Approach We undertook especially heavy legal research on these problems. Clearly, the retirement Judge Bellchamp earned after his divorce was his separate property and beyond the power “What are we going to do?”

of the court to divide. However, divorcing parties are free to divide separate property by agreement without restriction. Was there a legal avenue to reverse the award of Judge Bellchamp’s separate interest retirement? Further research revealed that the TCDRS had approved a QDRO that required Judge Bellchamp to select a specific retirement option and name a specific person (his ex-wife) as the beneficiary of his retirement. Chapter 804 of the Texas Government Code expressly prohibits a state government QDRO from imposing either requirement on the retiring employee.

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Plug the Hole

It’s rarely a good idea to leave money on the table.

Some 401(k) plan administrators charge an administration fee for processing a QDRO. The fee is usually between $300–$500. But be careful. Under some circumstances, Fidelity charges as much as $1,500 to process a QDRO. The smart negotiator knows this: Who pays the plan administration fee, if there is one, is as negotiable as every other term of the division. Most 401(k) plans that charge a fee will allow the parties to allocate the fee entirely to either party or equally to both parties.

Train yourself to spot this potential gain or loss for your client. “Attention to detail is the hallmark of a professional negotiator.”

We’ve observed that most attorneys ignore this money leak when they negotiate the division of a 401(k). They fight like crazy over who gets the earnings or what the valuation date will be, but completely ignore who will pay the plan administration fee if there is one. Or worse, they don’t know if the 401(k) plan even charges an administration fee.

Be Inspired

Don’t put money in your client’s bucket and let it leak out of a hole that you forgot to plug.

We decided that Judge Bellchamp had the most leverage with TCDRS because they had blatantly violated state law and financially injured Judge Bellchamp.

We prepared to initiate administrative proceedings against TCDRS. However, TCDRS asked us to work with them towards a nonlitigious resolution. We began negotiating with TCDRS before filing any documents. Because any agreement Judge Bellchamp and TCDRS came to would require the involvement of Judge Bellchamp’s former wife as well as his current wife, TCDRS opened the negotiations to all affected parties, which became quite arduous and extensive. The Result We negotiated a comprehensive agreement on behalf of Judge Bellchamp. He retained full ownership of all retirement earned after the divorce from his former wife. He also retained the exclusive right to select whichever retirement distribution option he preferred and to name his present wife as the beneficiary of the retirement he owns as well as the retirement his ex-wife received in the divorce. Judge Bellchamp’s legal fees were substantial, as they reflected the large volume of legal research and extended, multi-party negotiation that was necessary to achieve the desired result.

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401 Congress Ave Suite 1540 Austin, TX 78701 www.HernsbergerLawFirm.com 512.852.4373

INSIDE This Issue

Understanding ‘Included’ and ‘Excluded’ in the QDRO PAGE 1 Make Yourself Heard With ‘Fierce Conversations’ A Look at a Case: The Ex-Wife Calls PAGE 2 Plug the Hole PAGE 3 Did You Hear About the Dog Food Burglar? PAGE 4


Have you heard the story of Terrence Dickson? Even if you don’t know the name, you might have heard his strange tale. Dickson was a burglar in Bucks County, Pennsylvania. One day,

In 2002, a reporter from Pennsylvania contacted the Bucks County prothonotary’s office, where all records for civil cases in the county are kept. He discovered there was no record of any cases involving such a burglar. It’s worth noting the original email where this story first appeared ended with a call for tort reform from a made-up law firm in Ohio. Likely, this hoax was an attempt to manipulate the public perception of the justice system.

after breaking into a house and helping himself to some valuables, Dickson decided to leave through the garage. After discovering the automatic garage door was

stuck closed, Dickson turned around and was horrified to realize he’d locked himself inside. To make matters worse, the family he was stealing from had just left for an extended vacation, so Dickson lived off of soda and dried dog food for eight days. When the family returned and found the unlucky burglar, a lawsuit was filed — by Dickson! He sued for mental anguish, and the jury awarded him $500,000.

Despite being debunked 17 years ago, this tall tale still makes the rounds and often appears on lists of “outrageous lawsuits,” many of which are featured on the websites of legitimate law firms!

There are plenty of wacky legal cases, but when a story is too ridiculous, there’s a good chance a few important details are being left out or the readers are being lied to. Don’t believe everything you read online!

There’s nothing that shakes our faith in the justice system quite like injustice being served. When Dickson’s story first gained notoriety in 2001, thanks to an email circulated by the now-defunct Stella Awards newsletter, which highlighted “outrageous lawsuits,” people were rightfully enraged. There was just one problem: Terrence Dickson never existed.

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