QDRO Preparation Attorney in ChandlerSchedule a Consultation
Guymon Law attorneys prepare Qualified Domestic Relations Orders (QDROs) to assist parties in dividing retirement accounts and pensions incident to a divorce. Chandler QDRO preparation can be complex, especially when there are both separate and community elements to a retirement plan. Orders allocating interests in retirement plans should be prepared by someone experienced and qualified to do so; otherwise, the division of interests intended by the Chandler divorce decree may never come to pass.
The most common retirement division language in an Arizona decree is something like this: “The parties shall equally divide the community interests in any retirement plans and equally share the costs of any necessary Qualified Domestic Relations Orders (QDROs).” While expedient, and certainly in conformity with the law, this phrase ignores major issues and leaves the parties at risk of having to return to court or further Chandler mediation to resolve questions that must be answered in order to “equitably” divide retirement assets.
It is important to protect your rights and assets by trusting an attorney to prepare your QDRO for you. Please contact Guymon Law in Chandler, Arizona for assistance from skilled and experienced family law attorneys.
Why Choose Us for Chandler QDRO Preparation
- Our law firm’s primary focus is family law in Chandler. This means we have in-depth knowledge and experience handling complicated family law matters, including the division of property and retirement savings.
- We recognize that every client is unique. We connect with our clients, take the time to sit with them and personalize our legal services for their individual needs.
- All of our attorneys and staff members share our law firm’s core values: respect, honesty, mindfulness, excellence, trust and diligence. We are reputable attorneys in Chandler.
How Our Family Law Attorneys Can Help
A Qualified Domestic Relations Orders is a highly complex area of family law. If your divorce or legal separation case involves a QDRO, it is important to enlist a qualified and experienced family law attorney in Chandler for assistance. It is critical to get your documents right the very first time, as a mistake could cost you thousands of dollars in lost assets and penalties. It is well worth the cost of an attorney to ensure that your QDRO is completed correctly.
Having an attorney in your corner can also give you greater peace of mind during the legal process of obtaining a QDRO. Your lawyer can give you legal advice that you can depend on, such as whether or not you need a QDRO. Your lawyer can also complete the confusing paperwork that comes with drafting and submitting a QDRO – all while you focus on yourself and your future after a divorce or legal separation.
There Are Two Fundamentally Different Types of Retirement Plans: Defined Contribution and Defined Benefit
Each is treated differently for division purposes. Often the decree or settlement agreement simply refers to “retirement plans,” without specifying whether they are defined benefit or defined contribution plans.
- A “defined benefit” plan is commonly referred to as a “pension,” wherein the Participant will receive a lifetime guaranteed amount of money upon retirement, based upon earnings, years of service, and age at retirement. Some plans provide for a lump-sum payment or other options. In benefit plans, issues such as surviving spouse benefits and cost of living increases should be addressed.
- A “defined contribution” plan is a cash-type plan, such as a 401(k) or IRA. The Participant has an account into which funds are contributed during employment by either the employer or employee or both. Usually, the amount in the account will fluctuate with the market or other investments made within the account. There is no guarantee of how much money will be in the account when the employee retires, or how much the employee will receive monthly after retirement. In contribution plans, issues such as earnings and losses from the Division Date to the “Segregation Date” or “Distribution Date” and any loans from the plan should be addressed. The Segregation Date is the date the party who is to receive the distribution (the “Alternate Payee,” sometimes “spouse” or “former spouse”) has the funds transferred into their name.
The difference between benefit and contribution plans is important because the parties need to know what is being divided: a right to receive monthly payments in the future, or part of a cash fund with a balance that may fluctuate.
It is surprising how often settlement agreements contain statements such as, “Wife shall receive one-half of Husband’s Pension Plan as of the date of the divorce, plus or minus earnings and losses from that date until the date the account is divided.” This presents a problem, since the concept of “earnings and losses” does not apply to pension (defined benefit) plans. As discussed above, payments under defined benefit plans do not fluctuate with the market, and thus there are no “earnings and losses.”
Not Every Retirement Plan Requires a QDRO
Settlement agreements often provide that an IRA (“Individual Retirement Account”) will be divided by QDRO, but a QDRO is not necessary to divide an IRA or SEP (“Simplified Employee Plan”) account. Division of an IRA should normally only involve a letter of instruction from the Participant (frequently an internal institutional form), along with a copy of the decree or property settlement agreement, provided the decree/property settlement agreement contains language sufficient to divide the account pursuant to IRS Code section 408. But if the decree/property settlement is not specific enough for the IRA trustee to make a transfer pursuant to IRS Code section 408, the institution will require a clarifying domestic relations order (DRO).
Is a Chandler QDRO Reasonable?
Another point to consider is that it often does not make financial sense to agree to a division of assets, which will require a QDRO when the (defined contribution) account to be divided does not have enough money in it to make a QDRO worthwhile. If the account is only worth $3,000, it may be uneconomical to engage in a QDRO process (which frequently costs more than $1,000 in fees & costs) to give each party $1,500. Although there are some cases in which the parties insist that every account be divided in half, regardless of the cost and inefficiency involved, in many cases the parties could save themselves some money and aggravation simply by agreeing to transfer funds from an IRA or other asset rather than from a defined contribution plan. If the parties have other assets to choose from, consider whether it is absolutely necessary before agreeing to divide a small retirement plan by QDRO.
Does the Plan Allow a QDRO in Chandler?
Some plans are not divisible by QDRO. Under some state laws, state and local government plans cannot be divided by QDRO or other means. Note that, since government and church plans are exempt from ERISA, they do not contain certain protections found in ERISA plans. However, in Arizona, all state, county, and municipal plans can be divided by an “approved” Domestic Relations Order.
And some employees participate in “non-qualified” retirement plans which are also not divisible by QDRO. A non-qualified plan is a retirement plan which is not subject to ERISA, and thus not required to accept QDROs. These plans are usually set up by corporations in addition to their qualified retirement plans in order to provide higher-paid employees with more retirement benefits than the tax code will permit under qualified plans. They are sometimes referred to as “supplemental” plans because they are intended to supplement the retirement funds the employee will receive from the company’s qualified retirement plans. Some non-qualified retirement plans accept QDROs, but many do not, so it is a good idea to find this out before agreeing to divide a non-qualified plan in a divorce action. And if you can’t discover whether a particular plan is subject to a QDRO, consider setting up an alternative mechanism in the settlement agreement for dividing the funds. “In the event that the Wife’s XYZ Corporation Non-Qualified Supplemental Retirement Plan (‘the Plan’) cannot be divided by Qualified Domestic Relations Order, the parties agree that the Husband shall receive $5,000 from the Wife’s IRA in lieu of the funds awarded to him herein from the Plan.”
Adjustment For Earnings and Losses Should Be Addressed
There is usually a delay of several months (and sometimes years) between the date of division and the date of segregation. Bear in mind that during the dissolution process the Participant will be a constructive trustee of Alternate Payee’s share, and that Alternate Payee has no ability to direct or protect the investment. Equitably, shouldn’t the Alternate Payee’s share be subject to the same market fluctuations, up or down, as Participant? For example, what if an agreement provides that the funds shall be divided as of July 1, 2018, but this division does not actually take place until the QDRO is entered the following December? If the Agreement states that Wife shall receive 50 percent of the Husband’s 401(k) plan balance as of July 1, 2018, and the account was worth $100,000 on July 1, 2018, but has grown to $106,000 by December, what should the Wife receive when the account is divided? $50,000.00 or $53,000.00? And what if the year is like 2009 and the account is diminished by 30% between division and segregation? The agreement must specify what happens to earnings and losses on the amount awarded to the Wife between the date of division and the date of distribution or segregation.
Chandler QDRO Frequently Asked Questions in Arizona
At Guymon Law, we are happy to answer any questions that you may have about Qualified Domestic Relations Orders in Arizona. We can put our years of knowledge and experience in family law to use for your benefit. We will listen to your story and answer your specific questions during a case consultation in Chandler. In the meantime, these frequently asked questions can help you learn more about QDROs in general:
- Is a QDRO necessary to divide retirement savings? The answer to this question depends on your type of savings account. In many cases, a QDRO is necessary to protect an individual’s retirement savings in a separation or divorce. Using a QDRO for your retirement plan can protect your hard-earned savings and pay benefits to the correct payees.
- Who should prepare a QDRO? A family law attorney. No amount of online research can adequately prepare you to draft a QDRO. Trust this complex type of document with an attorney, who can personalize the legal process for you and prepare it according to Arizona’s latest laws.
- What are the main steps of completing a QDRO? First, an attorney prepares the QDRO on your behalf. Then, it is sent to the administrator of the retirement plan for pre-approval. Once approved, it will return to your attorney to be delivered to the court. A judge will sign the QDRO and send a certified copy to the administrator to effectuate the transfer to the alternate payee.
For other questions about QDROs in Arizona or to obtain tailored advice from a family law attorney, contact Guymon Law today. Our lawyers are qualified to prepare QDROs and have years of experience handling this common aspect of divorce and legal separation. We can give you QDRO advice that you can trust during an initial consultation in Chandler.
QDROs are almost always going to be complicated, but they don’t have to be painful. The key to avoiding post-decree QDRO problems is to be specific in drafting the agreement. If you take the time to investigate and agree on these issues before the divorce is final, you will find yourself dealing with fewer QDRO problems after the decree has been entered. It is far better, and less costly, to address these issues during settlement than to leave the agreement vague and then fight about them when they arise after the divorce is final.
Parties should also understand that time is of the essence, because the Supreme Court has repeatedly ruled that the decree of dissolution is not binding on the plan administrator, who is legally obligated by ERISA to pay survivor benefits according to “plan documents,” typically the named beneficiary. If before, during, or after divorce the participant changes the beneficiary to someone other than the spouse or former spouse, the terms of the decree may be frustrated by the participant’s death before a QDRO has been qualified. Such an event would complicate matters, because then a post-mortem QDRO would be required, assuming the alternate payee was properly designated in the Decree, and a probate proceeding may be required, increasing the expense substantially.
And if the claiming spouse wasn’t named as an alternate payee in the decree, chances are that former spouse would receive nothing from the Plan, unless he or she remained the beneficiary after divorce. The U.S. Supreme Court held in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009) 129 S.Ct. 865, that although the former wife of a deceased retirement plan participant legally waived her right to receive benefits from the participant’s retirement plan pursuant to a divorce decree; nonetheless, plan administrators were correct to disregard her waiver and distribute benefits to her upon the participant’s death. The Court held that plan administrators are duty-bound under ERISA to pay benefits in accordance with the governing plan documents and should not be required to search outside those documents for evidence of a purported waiver. Or, I might add, a state Decree awarding an interest to a former spouse.
This ruling supported an earlier Supreme Court ruling upholding the tenet that distributions from ERISA governed plans will be made pursuant to the plan documents, and not pursuant to state law; state marital property and probate laws are not controlling.
Government (Non-ERISA) Plans Require Special Consideration.
With non-ERISA pensions, such as those provided by federal (including military), state, county, and municipal entities, post retirement survivor benefits should be addressed in the property settlement agreement.
With private, ERISA governed pensions, the plan is required to make separate interest benefits (which are segregated and paid over the lifetime of the non-employee spouse) available. Non-ERISA pensions are not required to offer this benefit to the non-employee spouse and in many cases all benefits will terminate on the death of the pensioner unless provisions are both allowable under the plan and made at the time of division. (NOTE: Locally, this issue frequently arises when the pension is one of three (3) managed by the Public Safety Personnel Retirement System (PSPRS), and survivor benefits are not available to former spouses.)
QDROs can be used to collect not only retirement interests, but also child support, spousal maintenance, arrearages, property settlements (equalization or debt payments), and related attorney’s fees. Consider a provision in the settlement agreement or decree providing that if agreed or court-imposed obligations are not timely met, the aggrieved party will have recourse from the participant’s remaining retirement assets, and that the errant party will pay related costs.
We take the position that we are ‘neutral’ providers and endeavor to divide the assets as described in the Decree or PSA, and where those documents are silent, we infer that the intent was ‘equitable division’ consistent with A.R.S. § 25-318.
Contact Guymon Law Today
For more information about a Qualified Domestic Relations Order in Arizona, contact Guymon Law to speak to a knowledgeable and experienced family law attorney. Our lawyers have been representing clients in complicated family law matters for many years. We understand how QDROs work, who will benefit from a Chandler QDRO and how to properly prepare these legal documents according to state law. Learn more during a case evaluation with one of our lead attorneys. Call (480) 680-8823 or contact us virtually through our online query form. We look forward to hearing from you.