When Can I File My QDRO?

In the best case scenario, the parties have negotiated their Agreement and filed for an uncontested divorce. The QDROs were attached as exhibits to the Agreement, and are filed with the Court in advance of the uncontested divorce hearing. When this happens, the Court will process the QDROs along with the Judgment of Divorce, so everything is generally entered on the same day.

What happens if that is not the case?

If the parties do not get the QDROs prepared before the uncontested divorce hearing, they should be completed as soon as possible thereafter, especially if a person is awarded survivor benefits. In cases where substantial time has passed, it is possible that the account holder has spent the money that should have been transferred, or died and had the funds disbursed to a different beneficiary or through the estate. In either scenario it is difficult or impossible to recover the funds for the former spouse.

Similarly, if the case goes to trial, the parties can have QDROs drafted and submitted during the trial in the event the Court agrees with their proposed division of the assets. Alternatively, if the QDROs are not submitted during the trial, they should be completed as soon as possible following the issuance of the Judgment of Divorce for the reasons listed above.

While the reasons listed here are more to protect the spouse that is to receive the funds, it is also a hassle being the party that owns the account to be divided. That party should safeguard the funds that are supposed to be transferred, which could be difficult if that party comes into a financial hardship.

Whenever possible, the parties should agree on when the process to draft the QDRO will start, and who is responsible for seeing it through to completion. This way, the expectations are clear for both parties.

At any point in your case, if you have a question about timing, or steps to take regarding the division of retirement assets, please contact our office at 240-396-4373.

QDRO Corner: Dividing an Individual Retirement Account

Individual Retirement Accounts (IRAs) by law do not require a Domestic Relations Order to divide upon divorce. So, many financial institutions have created their own form that in combination with the judgment of divorce will provide all the required information they need to transfer funds from the account holder to the former spouse.

 These forms are your friends, especially when drafting the separation agreement. They will tell you things like does the former spouse need to have an account at that financial institution to receive the funds? Will the financial institution transfer with gains and losses, or do they require a flat sum as of the date of transfer? Can you designate specific securities to be transferred? What documents do you need to submit with the form?

You want to think about filling out the form and attaching it to the separation agreement. Why? Some forms only require the signature of the account holder, so the former spouse doesn’t have to agree to the form before it’s submitted to the financial institution. In a contentious case where the parties don’t trust each other this can be a big deal. Having it filled out in advance can give the parties an expectation for what is supposed to be transferred.

The biggest hurdle we’ve seen with IRA transfers is that many require the use of their form regardless of if you had a Court Order done, and many financial institutions will NOT transfer gains and losses as of a historical date on a transfer amount. Meaning, they are requiring a flat sum or percentage of the account to be transferred as of the date of division. Given the volatile market this is a difficult fact for many to swallow.

We have come up with a few creative solutions to effectively include gains and losses, and are happy to work with you on your case to see if we can come up with something that works for you. Please contact the Markham Law Firm team to discuss solutions with our team.

QDRO Corner: Dividing Defined Contribution Accounts: When to Equalize the Balances Out of As Few Accounts as Possible, and When to Divide Each and Every Account

We’ve all seen the cases where the parties have multiple retirement accounts, some traditional, some Roth, some mixed, some IRAs, some qualified employer-sponsored accounts.

The first consideration is Roth and traditional funds. Roth funds have already been taxed, therefore they are of different value than traditional funds which will be taxed when removed from the retirement account. Since they are not of the same value, they should not be compared against each other. Meaning, if a couple has both Roth and traditional accounts there should be at least two DROs. 

The second consideration is the investments within the accounts. If equalizing multiple accounts out of just one, is that account invested in risky or conservative investments? Are all the accounts invested in a similarly risky or conservative fashion? Depending on how the market is behaving, it will impact the market gains and losses on the account balance, and will likely impact each party’s preference as to which account is funding the transfer.  

Since DROs take substantial time to be processed before the funds are actually transferred, this is an important consideration, especially in today’s volatile market. Someone in tune with the market might suggest the transfer come out of one account of another because they anticipate that such account will do better or worse in the market while the DRO is being processed. But, would it be more in line with the agreement to divide each account so that the transfer comes out of all the investments, risky and conservative, and the alternate payee shares in the gains and losses across all accounts?

The final consideration on whether to divide each account or equalize out of one account is the cost of having the multiple orders prepared. Sometimes parties have over 6 retirement accounts to divide, which at a cost per order could be substantial. In that case, the client has to determine whether they believe they will receive more gains from dividing each account and do they have the current cash available to pay for those orders.

QDRO Corner: Thrift Savings Plan UPDATE

Effective June 1, 2022, the TSP has a new administrator for processing court orders AND a new record keeper. The switch to the new administrator had caused substantial headaches in many areas, resulting in an investigation by the Government Accountability Office which is scheduled to begin before the end of the year.

As it relates to family law, however, here is the relevant information regarding the changes to TSP:

1.    Valuation dates for dividing a TSP account prior to June 1, 2022 MUST be the end of a quarter. If the date is not such a date, then the TSP court order administrator will use the closest quarter-end date for the valuation date. What does this mean for parties? Take control and pick a quarter-end date for any valuation date prior to June 1, 2022.

2.    Division forms allowed: a percentage of the account as of a date certain (or the transfer date) or a dollar amount specifying whether gains and losses are to be included on the dollar amount if as of a specific date. **Historically the TSP would allow for a percentage of the account’s accrual between two dates. This division type is no longer accepted, and will result in a rejected Order. How to handle this change? Treat the TSP like any other defined contribution account, and if there is a premarital interest, subtract it from any transfer calculation.

3.    The TSP court order administrator charges $600 to review and implement the court order. Previously no such fee was charged. How to handle this change? Include in any agreement or court argument how the fee should be paid, if entire by one party or the other, or shared between the parties. It will come from the retirement account and/or the funds being transferred depending on which party is supposed to cover this fee.

The above items tend to be more hurdles to jump over while reaching an agreement. This final major change makes it (somewhat) easier to submit the order to the TSP court order administrator.

1.    Scans of certified court orders can be uploaded directly to the TSP court order administrator. Although making a submission includes submitting your own email address, I am yet to receive a confirmation email. However, after making the online upload, the webpage refreshes to say that a determination will be made in 20 business days. Many orders that we have submitted have not received a determination letter within 20 business days. Instead, we have had to call TSP to confirm the order was still under review.

On the whole, what does this mean for parties seeking a divorce where a TSP is involved? Only that there are a few more pieces to consider in the negotiations. 

One final piece of information: many orders submitted during the transition period were lost. If you submitted an order in May/early June and have not heard back, you may want to call TSP to check if they have the order, as you may need to resubmit it.

QDRO Corner: Maryland State Retirement Pension System – Survivor Options

The Maryland State Retirement Pension System (“MSRPS”) is one of the few plans that requires MORE information in a domestic relations order for a retired employee than it does for active employees.

Once an employee in the MSRPS begins receiving benefits from the plan, the opportunity has passed for the employee to select or change survivor options and the pension can only be divided as a shared interest, not a separate interest.

The MSRPS does not allow the survivor benefit option that was selected at retirement to be changed via a domestic relations order. MSRPS does, however, require that the survivor benefit option selected at retirement be included in the domestic relations order. The plan administrator (the Attorney General’s office) won’t share this information with the domestic relations preparer or the attorney for the former spouse, so it has to be provided by the participant. Therefore, if your case involves a retired State of Maryland employee, not only should you request the plan statements in discovery to get the plan name correct, but you should also request the paperwork submitted upon retirement. These documents can be obtained via a subpoena, if necessary.

A full description of the survivor benefit options that can be selected can be found in the Md. Code, State Personnel and Pensions, § 21-403.

QDRO Corner: Montgomery County Public Schools Employees’ Pension System

Last month we discussed the Maryland State Retirement Pension System (“MSRPS”), which in summary, is available for employees of the State of Maryland.

Employees of the Montgomery County Public School System (“MCPS”) have interest in a second pension system, the Montgomery County Public Schools Employees’ Pension System. To our knowledge, Montgomery County is the only county in Maryland that provides a second pension to employees such as teachers who are participants in the MSRPS.

Some teachers aren’t aware these are two separate plans, and will reference that they have “a pension” as a part of their retirement. If you have a case involving an employee, specifically a teacher, in MCPS, be sure to request all relevant documentation, including pay stubs, to determine whether this party is participating in both plans. Both plans require mandatory contributions, and therefore deductions will appear on the paystub. Eligibility is based on a multitude of factors, but for the most part any permanent (non-temporary) MCPS employee anticipated to work more than 500 hours in their first year of employment will be in both plans.

The two plans have different names, different rules, and different administrators. Therefore, one domestic relations order cannot divide both plans – if your case requires both plans to be divided, you will need two domestic relations orders. In addition, both plans should be addressed separately in any settlement agreement or judgment of divorce. Attorneys Jessica Markham and Leslie Miller litigated this issue in the Montgomery County Circuit Court in 2018.  If you have a dispute about these plans, or need orders drafted, we can prepare them, consult with you or provide expert testimony if needed.

QDRO Corner: Maryland State Retirement Pension System

Most employees of the State of Maryland have an interest in the Maryland State Retirement Pension System (“MSRPS”) for their retirement. The MSRPS consists of multiple retirement plans each with their own name and rules, including two for teachers (and participation is based on employment start date), one for the judiciary, and others for correctional officers and other state employees. 

Since the MSRPS consists of multiple named plans, any domestic relations order being submitted to the MSRPS must state the name of the specific plan in which the employee participates. Failure to do so will result in a rejection of the domestic relations order. Some of these plan names are quite similar. For example, the Teachers’ Pension System and the Employees’ Pension System. To make matters more confusing, teachers in Maryland depending on their exact circumstances could be eligible for participation in either of these plans – meaning, that just because there’s an MSRPS pension in your case and that party is a teacher, it doesn’t necessarily mean the person is a participant in the Teachers’ Pension System.

The participant should receive annual statements from the plan. In the event the participant says they don’t get these statements – there’s an online portal for them to log-in and download it. This statement includes a lot of good information, including the name of the specific plan, the plan entry date, the hire date, the creditable service, and an estimate of the retirement benefit. Be sure to request this documentation in discovery to be fully informed regarding this benefit not only for any settlement discussions, but to facilitate the drafting of the domestic relations order.

QDRO Corner: Military Orders – When You Need Additional Information

Representing military service members can come with a lot of extra considerations, only one of which is the division of any disposable retired pay. Depending on the service member’s service record, date of entry, and duty status, you might want to include additional information in your Agreement to make sure all information is obtained before signing.

Specifically, for a service member who is not yet retired nor receiving disposable retired pay, the Order must include the service member’s high-3 and years of creditable service (or creditable reserve points). It’s best to obtain this information while still negotiating the agreement, or in your discovery requests if in litigation.

To determine the service member’s high-3, you’ll need to know the pay grade for the highest 36 consecutive months during the marriage and date of entry.

To determine the amount of creditable reserve points earned, the service member can download a statement reflecting not only the amount of points earned each year, but the specific dates on which the service member performed the drills to earn those points. This detailed statement is especially helpful if the service member earned points prior to the marriage that should not be included in the division to determine the former spouse’s share.

If in litigation, you should request this information in your discovery requests, and if negotiating, you should request it in informal discovery.

In contrast, if the service member is already in pay status, then you don’t need to obtain the information listed above.

Have additional questions about military orders as it relates to a QDRO? Contact our office at 240-396-4373.

QDRO Corner: FERS Disability Retirement

Last month we discussed the military pension disability retirement – this month we will focus on the FERS disability retirement, for all the federal government employees we represent.

Unlike with the military pension, there is some negotiating that can happen with respect to FERS disability pensions. First though, how FERS disability works. The employee receives the greater of their regular FERS annuity or a percentage of their high-3 average salary less a percentage of their social security disability benefits (see OPM publication for more information regarding the calculation). 

At age 62, the employee’s annuity is automatically recalculated to be as if the employee continued working until the day before their 62nd birthday, including an extension of their service time and cost of living adjustments applied to their salary computation during the time that the employee was received disability benefits.

The FERS disability benefits received prior to age 62 are divisible by Court Order and there are points to negotiate on this. Specifically, how the former spouse’s share of the pension should be calculated during the period that the employee is receiving disability benefits. If the Court Order states the award to the former spouse as a portion of the employee’s annuity without any specific distinction for disability benefits then the former spouse will receive a share of the payments actually made by OPM to the employee.

Alternatively, the Court Order could state that the former spouse’s share can be defined that if disability payments are made, the former spouse’s share shall be calculated as if the employee is paid their full FERS benefit.

Since the employee’s benefit could be reduced based on the amount of social security benefits while receiving FERS disability, this could be a financially important distinction for the former spouse. While such a division would likely result in a larger reduction to the funds received by the employee while on disability, the employee will receive social security benefits, which are non-divisible.

QDRO Corner: Military Disability Retirement

Here in the DMV, we represent a large amount of military service members. As such, we see the military pension (disposable pay) frequently, along with military disability pay. Military disability is paid through the Department of Veterans Affairs and is not taxable income and is not divisible in a divorce.  

This is an important distinction not because there is anything that can be done about it when negotiating a settlement, but to set good expectations for your client. When a military member is receiving regular disposable pay and has a disability rating that makes them eligible for disability pay, it is solely the member’s option whether to receive the funds as disposable pay or disability pay. This option cannot be waived by the member in a separation or divorce agreement.

If the member has a disability rating less than 50%, the only way to receive disability is to waive an equal amount of disposable retired pay, i.e.: the member will receive the same amount of gross funds each month, but the amount that is disability will not be taxed, therefore netting a larger amount. This decision impacts the former spouse because the member can decide to receive disability pay, thereby increasing their own income by avoiding taxes, and lowering the former spouse’s income by decreasing the amount of disposable retired pay available for division. Note, there is no way to draft around the member’s option – the only way to try to equalize is to take from a different asset.

If the member has a disability rating of 50% or higher, they may be eligible for Concurrent Retirement and Disability Pay. This program allows eligible members to receive their full disposable pay, as well as disability pay without waiving any of the disposable pay.  

The amount of disability received from the Department of Veteran’s Affairs can change based on periodic re-evaluations. If the disability rating changes, the amount of disability received will likely change. The amount of disability received will only change if the disability rating changes.

Stay tuned for next month’s QDRO Corner about FERS disability pay for federal government employees!