This document discusses the importance of drafting a Qualified Domestic Relations Order (QDRO) when dividing retirement assets in a divorce. It notes that many clients are awarded retirement assets in their divorce decrees but never actually receive the funds because a QDRO was never prepared. Drafting a QDRO can be complex due to regulations in the tax code and ERISA. The document provides an overview of the process for identifying retirement assets, valuing them, dividing them in a marital settlement agreement, drafting the QDRO, getting it approved, and distributing the funds while addressing any tax implications. It emphasizes that failing to complete this QDRO step can result in clients losing out on substantial retirement funds awarded to them.
Investing Retirement Plan Assets: What Are The Limits?Bruce Givner
The Internal Revenue Code and the Title I of ERISA (administered by the U.S. Department of Labor) have restrictions on how retirement plan assets can be invested. For example, certain investments will cause UBTI (unrelated business taxable income) to what is otherwise a tax-exempt trust. Certain investments may cause prohibited transactions with the resulting excise tax under IRC Section 4975. There are also the general fiduciary rules governing trustees generally, e.g., the duty to diversify. This handout is designed to advise the trustee and the plan sponsor on how to avoid the pitfalls.
Slides used to facilitate discussion about common things divorce attorneys fail to address or include in writing when finalizing the final copy of the Marital Settlement Agreement that leaves issues remaining or open when it comes time to prepare the Qualified Domestic Relations Order
In 1989 Alaska was the first state to allow a domestic asset protection trust. In that same year Nevada and Delaware also changed their laws to allow DAPTs (also called self-settled spendthrift trusts). The question was - for 30 years - if a person in California set up a DAPT in Nevada - could a judgment creditor in California take his judgment to Nevada and have the Nevada court enforce the judgment against the California debtor's asset protection trust. Some lawyers argued "yes," citing Art. IV, Section 1 of the U.S. Constitution, the "full faith and credit clause." Other lawyers argued "No, it would be against Nevada's public policy." Finally, in June, 2019, the South Dakota Supreme Court held that it would give "full faith and credit to the California family law court order. However, it would not give full faith and credit to the enforcement against a South Dakota trust. Will this case make it to the U.S. Supreme Court? What about the on-going divorce of Ed and Marie Borsarge? The Cameron case did not involve an asset protection trust. But certainly South Dakota, Nevada and the other states will rule the same way in a case involving an asset protection trust.
Everything You Always Wanted To Know About Grantor (And Other Irrevocable) Tr...Bruce Givner
What is an irrevocable trust? How can it be flexible? How can the parents maintain a level of control? What makes an irrevocable trust a "grantor" trust and, therefore, disregarded for income tax purposes? What are the advantages of a grantor trust for asset protection planning and estate tax planning purposes? What are the disadvantages? How can you eliminate the disadvantages through the use of a "toggle" (or flip) switch? What are the tax return and EIN requirements for a grantor trust? What happens when the owner dies? When there is an outstanding installment note, does the owner's death trigger gain? Can a trust be treated as owned by someone other than the grantor? Do grantor trusts still make sense now that the estate tax rates are 40% and the income tax rates, in states like California, are even higher? Are grantor trusts here to stay?
Investing Retirement Plan Assets: What Are The Limits?Bruce Givner
The Internal Revenue Code and the Title I of ERISA (administered by the U.S. Department of Labor) have restrictions on how retirement plan assets can be invested. For example, certain investments will cause UBTI (unrelated business taxable income) to what is otherwise a tax-exempt trust. Certain investments may cause prohibited transactions with the resulting excise tax under IRC Section 4975. There are also the general fiduciary rules governing trustees generally, e.g., the duty to diversify. This handout is designed to advise the trustee and the plan sponsor on how to avoid the pitfalls.
Slides used to facilitate discussion about common things divorce attorneys fail to address or include in writing when finalizing the final copy of the Marital Settlement Agreement that leaves issues remaining or open when it comes time to prepare the Qualified Domestic Relations Order
In 1989 Alaska was the first state to allow a domestic asset protection trust. In that same year Nevada and Delaware also changed their laws to allow DAPTs (also called self-settled spendthrift trusts). The question was - for 30 years - if a person in California set up a DAPT in Nevada - could a judgment creditor in California take his judgment to Nevada and have the Nevada court enforce the judgment against the California debtor's asset protection trust. Some lawyers argued "yes," citing Art. IV, Section 1 of the U.S. Constitution, the "full faith and credit clause." Other lawyers argued "No, it would be against Nevada's public policy." Finally, in June, 2019, the South Dakota Supreme Court held that it would give "full faith and credit to the California family law court order. However, it would not give full faith and credit to the enforcement against a South Dakota trust. Will this case make it to the U.S. Supreme Court? What about the on-going divorce of Ed and Marie Borsarge? The Cameron case did not involve an asset protection trust. But certainly South Dakota, Nevada and the other states will rule the same way in a case involving an asset protection trust.
Everything You Always Wanted To Know About Grantor (And Other Irrevocable) Tr...Bruce Givner
What is an irrevocable trust? How can it be flexible? How can the parents maintain a level of control? What makes an irrevocable trust a "grantor" trust and, therefore, disregarded for income tax purposes? What are the advantages of a grantor trust for asset protection planning and estate tax planning purposes? What are the disadvantages? How can you eliminate the disadvantages through the use of a "toggle" (or flip) switch? What are the tax return and EIN requirements for a grantor trust? What happens when the owner dies? When there is an outstanding installment note, does the owner's death trigger gain? Can a trust be treated as owned by someone other than the grantor? Do grantor trusts still make sense now that the estate tax rates are 40% and the income tax rates, in states like California, are even higher? Are grantor trusts here to stay?
Tax Consquences in Divorce in Washington StatePhilip Tsai
Filing status and divorce, tax implications and divorce, division of assets, gains from residence, child support and alimony, dependency exemption, and deductible costs in divorce.
Family Limited Partnerships Update - Diagrams and Bullet Points - February 6,...Bruce Givner
Normal FLP structure for estate tax planning; modifying it to amplify the extent to which it can help add a hurdle between valuable assets and some future (not currently in existence) creditor if properly aged (4 - 7 years before there is a problem) and if it has a business purpose; important points in the event of an estate tax audit, e.g., separate counsel for the children's trust; problem of timing of the funding of the assets to the FLP versus timing of the gift of LP interests; problem of the change of California's LLC act effective 1/1/14; use of FLPs with captive insurance companies, pensions, life insurance and as an alternative to an ILIT.
20 07-23 building blocks to eliminate the estate taxBruce Givner
In 1977 Professor Cooper of Columbia Law School wrote an article that suggested the estate tax is voluntary. In 43 years, nothing has changed. Those who fail to plan, plan to fail. The elements of estate tax elimination include the discounts provided by a family limited partnership, such as lack of marketability and lack of control; thoughtful use of the lifetime estate and gift tax exclusion; private annuities, including how to meet the exhaustion test; generational split dollar; tiered entity discounts; GRATs (grantor retained annuity trusts); and SCIN-GRATs.
Crossing Borders: Primer On International Taxation For Individuals - June, 2013 Bruce Givner
Basic income and estate and gift tax rules for resident and non-resident aliens. Withholding. Returns to be filed. Pre-immigration planning. Residency for tax purposes. Expatriation - IRC Section 877A. How to hold real estate (inbound planning). Effectively connected income so as to be taxed at graduated rates. What does it mean to be engaged in a trade or business. Impact of treaties. Making the election to be taxed on a net income basis. Owning real estate through a foreign corporation, and handling the branch level taxes. IRS Forms 1120-F and 1040NR. FDAP: fixed,determinable and periodical income at 30%. Partnership might be required to withhold on foreign partner's share of gain on sale of real property under Section 1445 (USRPIs) and Section 1446 (partnerships). U.S. dividends paid to foreign subject to 30% under Sections 1441 and 1442. Treaties typically reduce the rate to 5% - 15%. Use W*-BEN. FIRPTA: the Foreign Investment in Real Property Tax Act treats gain from the sale of USRPI (United States real property interest) as if trade or business and gain as ECI (effectively connected income. Does not affect the character of the gain.
For more information, please visit us at www.givnerkaye.com
Unexpected IT - Keynote GreenSI 15 ans LinkbynetCHARLES Frédéric
Depuis 15 ans l'informatique nous surprend quotidiennement. Des nouveautés auxquelles on ne prête pas attention amènent parfois des ruptures majeures quelques années plus tard...
Tax Consquences in Divorce in Washington StatePhilip Tsai
Filing status and divorce, tax implications and divorce, division of assets, gains from residence, child support and alimony, dependency exemption, and deductible costs in divorce.
Family Limited Partnerships Update - Diagrams and Bullet Points - February 6,...Bruce Givner
Normal FLP structure for estate tax planning; modifying it to amplify the extent to which it can help add a hurdle between valuable assets and some future (not currently in existence) creditor if properly aged (4 - 7 years before there is a problem) and if it has a business purpose; important points in the event of an estate tax audit, e.g., separate counsel for the children's trust; problem of timing of the funding of the assets to the FLP versus timing of the gift of LP interests; problem of the change of California's LLC act effective 1/1/14; use of FLPs with captive insurance companies, pensions, life insurance and as an alternative to an ILIT.
20 07-23 building blocks to eliminate the estate taxBruce Givner
In 1977 Professor Cooper of Columbia Law School wrote an article that suggested the estate tax is voluntary. In 43 years, nothing has changed. Those who fail to plan, plan to fail. The elements of estate tax elimination include the discounts provided by a family limited partnership, such as lack of marketability and lack of control; thoughtful use of the lifetime estate and gift tax exclusion; private annuities, including how to meet the exhaustion test; generational split dollar; tiered entity discounts; GRATs (grantor retained annuity trusts); and SCIN-GRATs.
Crossing Borders: Primer On International Taxation For Individuals - June, 2013 Bruce Givner
Basic income and estate and gift tax rules for resident and non-resident aliens. Withholding. Returns to be filed. Pre-immigration planning. Residency for tax purposes. Expatriation - IRC Section 877A. How to hold real estate (inbound planning). Effectively connected income so as to be taxed at graduated rates. What does it mean to be engaged in a trade or business. Impact of treaties. Making the election to be taxed on a net income basis. Owning real estate through a foreign corporation, and handling the branch level taxes. IRS Forms 1120-F and 1040NR. FDAP: fixed,determinable and periodical income at 30%. Partnership might be required to withhold on foreign partner's share of gain on sale of real property under Section 1445 (USRPIs) and Section 1446 (partnerships). U.S. dividends paid to foreign subject to 30% under Sections 1441 and 1442. Treaties typically reduce the rate to 5% - 15%. Use W*-BEN. FIRPTA: the Foreign Investment in Real Property Tax Act treats gain from the sale of USRPI (United States real property interest) as if trade or business and gain as ECI (effectively connected income. Does not affect the character of the gain.
For more information, please visit us at www.givnerkaye.com
Unexpected IT - Keynote GreenSI 15 ans LinkbynetCHARLES Frédéric
Depuis 15 ans l'informatique nous surprend quotidiennement. Des nouveautés auxquelles on ne prête pas attention amènent parfois des ruptures majeures quelques années plus tard...
Numerous federal requirements govern retirement plan distributions upon the death of a participant. Other rules give a plan sponsor flexibility in the payment features it wishes to include. The determination of who receives a participant's death benefit falls into both camps. Accordingly, the qualified plan document and its underlying forms should contain tightly drafted language that is compliant with the current regulations and clear enough to guide the plan administrator on practical execution. This article examines some of the key issues that qualified retirement plan sponsors should consider when reviewing and updating plan documents and administrative procedures to ensure compliance with current beneficiary designation rules.
This White Paper is written by Paul J. Smith, AIF and Gary Sutherland, CIC, MLIS from NAPLIA.
The paper discusses E&O Coverages basic procedures and how the industry has arrived at this point.
The Ultimate Guide to Drafting Your Separation Agreement with a TemplateBTL Law P.C.
In Ontario, the legal framework surrounding separation agreements is primarily governed by the Family Law Act (FLA). This provincial legislation outlines the requirements and conditions under which a separation agreement must be executed to be considered valid and enforceable. more at https://separationagreementontario.ca/
September ViewPoint Newsletter from Steve Stanganelli CFP(R)Steve Stanganelli
Welcome to the September 2011 edition of the ViewPoint Newsletter from Steve Stanganelli, CFP(R) of Clear View Wealth Advisors, a fee-only RIA located in Massachusetts. In this issue, retirement income planning, college funding strategies and tax tips for business owners and those going through divorce are shared.
What is a QDRO and how do I get one in a Texas divorce?Adam Kielich
Fort Worth employment and divorce lawyer Adam Kielich discusses QDROs and how QDROs are obtained in a Texas divorce. Learn more about these critical orders and how they affect the property division in a divorce.
The Kielich Law Firm
2205 Martin Drive, Suite 200-K
Bedford, Texas 76021
P: 817-857-1123
W: www.kielichlawfirm.com
Toby mc cosker - estate planning for commercial real estate ownersToby McCosker
toby mcCosker improves the properties through hands-on management and targeted value-add initiatives. Our efforts result in solid returns for investors and strong economic assets for communities.
FATCA Withholding from a Security Master and Payment Perspective
Presented at Nordic FATCA & Withholding Tax Congress Stockholm, Sweden June 12-13, 2013
What you need to know before and after the Final Decree of Divorce. This presentation was given by Gary Ashmore at the Texas Advanced Paralegal Seminar in October 2012.
The CARES Act: A Simple Summary for InvestorsSusan Langdon
Sweeping legislation to respond to COVID-19 pandemic was cleared by Congress and signed into law on March 27, 2020. The Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) authorizes more than $2 trillion to battle COVID-19 and its economic effects. The law is wide-ranging from support to the health care system’s fight against the coronavirus, as well as direct payments to individuals, expanded unemployment insurance, loans to small and large businesses, and support for state and local governments.
This document provides an overview on retirement investor’s relief in the government’s stimulus bill to help alleviate the financial strains from the coronavirus.
1. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 1
Contra Costa
LAWYERVolume 27, Number 2 | March 2014
Family Law
Tax Update
The Tax Edition
Tax Avoiders Beware:
Disclosure of Foreign Assets
Held By U.S. Taxpayers
Underway
Procedural Considerations
for Submitting an OIC:
Anderson v. Commissioner
2. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 9
CCCBA MeMBer
SinCe 1977 www.davidbpastor.com
1280 Boulevard Way, Suite 212 • Walnut Creek, CA 94595
925-932-3346 • david@davidbpastor.com
Law Offices of
DAviD B. PAStor
David B. Pastor
ConServAtorShiPS
ProBAteS
CriMinAl DefenSe
• Free Consultation •
The Problem of the Missing QDRO
C
lients often consult with a family law attorney
requesting modification or enforcement of some
aspect of their dissolution judgment. They may
ask for help with changes in spousal support, for
a court order for sale of the family home after the kids
leave, or enforcement of child support payments. No
surprise there.
But what is surprising is the number of post-dissolu-
tion clients who have never had a Qualified Domestic
Relations Order (QDRO) prepared on their behalf.
The amount of money left on the table after a di-
vorce can be staggering. Routinely, clients are awarded
$50,000 to $100,000 (or more) in retirement plan assets
in the property settlement. But regrettably, many never
claim a penny.
The client may not understand, for example, that a
lifetime pension was theirs for the taking. Or they mis-
takenly assume that because the nest egg is identified in
the judgment, a pension check will inevitably be sent to
them when they reach age 65. So they wait, sometimes
five, 10, even 20 years after the divorce, without ever
having a QDRO drafted.
Usually the QDRO can be issued without incident.
But a fateful few may be devastated to find that their
long-forgotten former spouse has (unlawfully) taken
and spent all the retirement assets awarded in the an-
cient judgment. Unfortunately, by the time the misap-
propriation is discovered, the wrongdoing spouse may
be penniless or dead.
A Complex Area of Law
How does the problem of the pretermitted QDRO
arise? To be honest, it is very complicated to draft a
QDRO, have it approved by the retirement plan’s ad-
ministrator and opposing counsel, get it signed by both
the parties and the judge, and finally be able to get some
money out of the plan.
The body of law relating to retirement plans is com-
plex and byzantine. To further confuse the unwary
practitioner, the US Tax Code (Internal Revenue Code of
1986, as amended, 26 U.S.C. §1 et seq. (Code)) and the Em-
ployee Retirement Income Security Act of 1974 (ERISA)
are often duplicative of each other.1
As a result of this
duplication, there are two sets of virtually identical
QDRO rules—one set in ERISA section 206(d)(3)(B)(i) and
the other in Code section 414(p)(1)(A).
In addition to the Code and ERISA, there are at least
40 other acts that also affect retirement plans. If the em-
ployer violates any of these rules, they face the draco-
nian threat of plan disqualification. If that happens, the
employer and employee may be forced to pay ordinary
income tax on the money in the plan accounts.
The Department of Labor’s (DOL) Employee Benefits
Security Administration (EBSA) provides guidance on
ERISA, generally, and QDROs, spe-
cifically. The DOL’s guidance ma-
terials can be found at http://www.
dol.gov/ebsa/publications/. Both the
DOL and Treasury (i.e., IRS) regula-
tions must be complied with for a
QDRO to hold water.
Getting the Facts
Because the family’s biggest as-
sets may be their employee benefit
plans, family law attorneys must
determine what these benefits are
worth. This information cannot be
overlooked! Given all of the above-
by Rita A. Holder
3. MARCH 201410
ment benefits after the judgment or final decree is en-
tered.
The next step is drafting the QDRO. First, contact the
plan administrator to get a copy of the plan’s model
QDRO, if available, and written QDRO procedures. If a
model QDRO is not available, the attorney will need to
draft the language of the QDRO on their own. The ad-
ministrator of the plan is the arbiter of all things QDRO.
In a defined benefit plan, the question of survivor bene-
fits must be considered—for both the employee and the
non-employee.
If the non-employee is awarded a portion of the em-
ployee’s account balance in a defined contribution plan,
the non-employee’s spouse’s attorney will need to pro-
tect the spouse’s interest in case he or she dies before
benefits are distributed. Any attorney who decides to
prepare a QDRO without consulting the plan adminis-
trator does so at his or her own peril.
Next, even if the attorney is using the model QDRO
format from the administrator, it is the best practice to
prepare a draft for the administrator’s review and that of
opposing counsel. Any problems identified by the plan
administrator or counsel can be ironed out before the or-
der is presented to the judge. The plan administrator can
still reject the QDRO as not meeting employer require-
ments, even though the judge has already signed it!
Taxation of the Distribution
If the QDRO passes the muster of the plan administra-
tor and is signed by the court, it is then sent back to the
plan administrator. In due course, a distribution from
the qualified retirement plan will be made to the non-
employee spouse (the “alternate payee”) either in cash
or a defined benefit stream of payments.
Invariably, the alternate payee will be disappointed to
find that the distribution is subject to a 20 percent man-
datory income tax withholding. To avoid this manda-
tory withholding, the alternate payee has 60 days to roll
over the QDRO distribution as per Code sections 402(c),
402(e)(1)(B) and 3405. The 10 percent early distribution
penalty does not apply to distributions made pursuant
to a QDRO.2
The IRS’ “Special Tax Notice Regarding Plan Pay-
ments,” which will be sent to the alternate payee, is
quite informative. It can be downloaded from the IRS’
website at www.irs.gov, or by calling 1-800-TAX-FORMS.
Practitioners should note that even if the client receives
bad tax or legal advice regarding a QDRO rollover, the
transaction cannot be undone and will not qualify for
deferred tax treatment.3
California has mandatory state income tax withhold-
ing of 10 percent of the federal income tax withheld—
unless the taxpayer elects to opt out of withholding (CA
Form DE4P). Like the Feds, there is no California state
income tax withheld if the QDRO distribution is rolled
Missing QDRO,
cont. from page 9
mentioned complexity in the law, this can be a chal-
lenge. Attorneys may find that clients have little knowl-
edge as to the type, or value, of the couple’s retirement
plans. In some cases, the assistance of ERISA counsel
may be advisable.
Most employers will provide general information
aboutplanbenefits,ifaskedbythespouseorthespouse’s
attorney. If the client is uncertain as to their spouse’s
retirement plan benefit, and is unable to obtain them
from the employer, the attorney should identify them
through the use of interrogatories, requests for produc-
tion of documents, or subpoena duces tecum issued to
the plan’s administrator.
In addition, remember to find out if the spouse main-
tains an Individual Retirement Account (IRA), so that it
too may be included in the property settlement. Be sure
toaskforaccountstatementsandrecentpensionestimates.
Retirement benefits will be either traditional “de-
fined benefit” pension plans, funded entirely by the
employer, or defined contribution plans, such as 401(k)
plans, often funded by a combination of employee and
employer contributions. Once you find out what kind
of plan the client or the spouse participates in, the next
task is to find out how much that employee benefit plan
is worth in actual dollars.
In a surprising number of situations, the employee-
spouse keeps, or gives up, their entire pension without
the client or the attorney knowing exactly how much it
was worth. Seek expert help if there is any question in
this area.
In order to value the defined benefit plan assets, it is
often advisable to engage the services of an actuarial
firm on your client’s behalf. The actuary can be a matter
for stipulation, or the court can be asked to make a deci-
sion as to the actuary to be engaged. An actuarial valua-
tion can cost anywhere from $500 and up. However, this
is money well spent, and can be split between the par-
ties. Once the actuary values the retirement plan assets
of the parties, informed negotiations can begin.
Preparing the QDRO Document
When the parties reach agreement on the community
property division, the Marital Settlement Agreement
(MSA) or Stipulated Judgment can be drafted, incorpo-
rating precise language that describes the manner in
which the retirement plans are to be divided.
Attorneys are often understandably confused, believ-
ing that once the retirement plan assets are identified,
discussed and divided in the judgment or the MSA, that
should be the end of it. Unfortunately, this is not true.
There is another essential step in the division of retire-
4. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 11
directly into an IRA or another qual-
ified plan. The 2½ percent state pre-
mature distribution penalty does not
apply to distributions pursuant to
divorce.
Many post-dissolution clients have
never had a QDRO prepared on their
behalf. This may be due to the fact that
the body of law relating to retirement
plan QDRO is full of twists and turns.
Unlike case law, tax law does not
hold much wiggle room. Practitioners
should pay close attention to the Code
and ERISA requirements when draft-
ing a QDRO. s
1
ERISA is found at 29 U.S.C. Ch. 18 et seq.
2
Code § 72(t)(2)(C).
3
Mills v. Commissioner, T.C. 2003-41.
Rita A. Holder maintains a law
practice in Walnut Creek, special-
izing in family law and ERISA. For
over 30 years, she has advised many
companies, large and small, about
ERISA issues and QDRO procedures.
Rita holds an LL.M. in Tax/ERISA.
rita@ritaholderlaw.com.
Northern California
Mediator / Arbitrator
18 years as Mediator
27 years as Arbitrator
35 years in Civil Practice
Roger F. Allen
510.832-7770
Ericksen, Arbuthnot
155 Grand Avenue, Suite 1050
Oakland, CA 94612
rallen@ericksenarbuthnot.com
• Training includes Mediation Course at
Pepperdine University 1995
• Serving on Kaiser Medical Malpractice
Neutral Arbitrators Panel
• Settlement Commissioner, Alameda and
Contra Costa Counties
• Experienced in all areas of Tort Litigation,
including injury, property damage, fire loss,
malpractice, construction defect