Division of Retirement Plans and Assets

Judith Deer, Esq. delivered a spirited talk to 15 members of the Collaborative Divorce Association of North Jersey at its recent brown-bag lunch on April 3, 2019. The presentation included all aspects of division of retirement plans as part of the divorce process. Ms. Deer is the president of All-Pro QDRO, an organization dedicated to assisting law firms in negotiating and drafting a Qualified Domestic Relations Order (“QDRO”).

Various types of retirement plans were reviewed. Ms Deer discussed in detail the difference between Defined Contribution Plans (such as a 401(k) or savings plans) and Defined

Benefit Plans (such as traditional pension plans). The various mechanisms of division of Defined Benefit Plans were addressed including the martial coverture approach (Marx Formula) and the immediate offset approach.

A most informative part of the talk included division of a 401(k) pre-judgment, without any early withdrawal penalty. By the use of a QDRO, qualified payees which are limited to a spouse, former spouse or a dependent can utilize a QDRO pre-judgment for certain purposes including payment of legal fees. In these instances the alternate payee satisfies any taxes which might be due.

Ms. Deer reviewed the four things which should be included in the Property Settlement Agreement, to then be incorporated into the QDRO. These include the following:

  • 1.Qualified Pre-Retirement Survivor Annuity so the alternate payee receives the funds even if the participant dies before the plan goes into effect.
  • 2. Marx Formula (martial coverture fraction).
  • 3. Cost of living increases.
  • 4. Early retirement subsidy.

Ms. Deer pointed out that if these items are negotiated between the parties, which unfortunately is often not the case, it can avoid problems later on when preparing the QDRO. If the early retirement subsidy, for example, is not included in the Property Settlement Agreement, it can result in litigation at a later point.

Ms. Deer also discussed New Jersey state plans as opposed to Federal plans; public plans as opposed to private plans; and provided a general overview of TIAA-CREF. The mechanism by which various plans set up separate interest accounts for the alternate payee was also reviewed. Ms. Deer pointed out that once an election has been made for the creation of the separate interest account, such elections are irrevocable.

We were also treated to a discussion of the unique Police Fire Retirement Pension which is the only plan in New Jersey that does not allow for survivor benefits. Ms. Deer recommended that if a PFRS plan is involved, the best approach is to value the pension so that the alternate payee can be bought out or if necessary life insurance can be purchased to avoid the problem of the participant dying before the alternate payee.

Judy had an audience which was quite interested in the presentation. She endured questions which went on well past the usual ending time. An enjoyable and educational experience was had by all.

By: Daniel Hoberman, Esq.

 

Seven Common Life and Disability Insurance Mistakes in Divorce

No one wants to think about their own demise, so life insurance is often a chore that we procrastinate doing or rush into without much thought just get it done. However, when used as a tool to secure a former spouse’s alimony obligations after his or her death, we want our collaborative professionals to know the ins and outs to protect us. Members of CDANJ recently participated in an eye opening discussion highlighting the 7 common life and disability insurance mistakes made by attorneys in negotiating divorce settlements.

Host, Scott Schroeder of Alimony Protection Group LLC, discussed the perils of:

1. Not independently verifying the status of existing Life and disability insurance policies;
2. Not determining if the supporting spouse is able to qualify for new Life and disability insurance coverage if needed;
3. Not determining the proper amount of Life and disability insurance coverage to secure the alimony and support payment obligations;
4. Not obtaining the correct type of Life and disability insurance policies to secure the alimony and support payment obligations;
5. Not implementing the proper ownership structure of the Life and disability insurance policies to maximize tax benefits and protect beneficiaries.
6. Not changing the beneficiary designations on existing Life and disability insurance policies after the divorce is finalized;
7. Not providing the supported spouse with ongoing access to relevant Life and disability policy information.

Scott then shared his expertise in how to avoid these mistakes so as to provide a higher degree of comfort and security to collaborative clients. Scott’s focus was to shift the life insurance discussion from a last minute detail to a regular part of our collaborative discussions. Knowing what insurance a family has and what is needed after a divorce can be eye opening. Scott helped our professionals recognize a common problem in divorce negotiation and reframe the issue moving forward. The more knowledge and tools our collaborative professionals have to find peaceful resolutions to family conflict, the more readily they can assist in creating settlements that protect families.

Parenting Post Divorce

Whether you are considering divorce or in the process, you need to think about how you and your partner/spouse will both parent your children. Unless your partner is unavailable or totally incapacitated, for any reason, you are in it together. There are choices to be made.

Decide between you so no one else gets to mandate your parenting role, the most important job in your life.

  • Do you have similar parenting philosophies and styles?
  • Can you both work through different opinions?
  • Is there flexibility for the children’s benefit?
  • Is your communication reasonably good?
  • Do you trust each other’s parenting?
  • Can you both put the children before your own feelings?

 

If you can answer affirmatively on the above, than you are ready for cooperative coc-parenting. It is the best way for your children to flourish. They learn that, although you do not want to be with each other any more, you are able to work together for their sake. You will be good role models and add to your children’s sense of security and well-being.

  • Do you both have very different parenting styles?
  • Do you feel very strongly that you are usually right?
  • Is it hard to communicate without arguing, name-calling, etc?
  • Are the children ‘stuck’ between parents?
  • Are stalemates your norm with each other?
  • You both want to have relationship with your children.

If your answers are ‘yes’ to the above, than cooperative co-parenting is not going to work for you at this time [though, hopefully, that would change]. Parallel parenting is recommended in such situations. When there is high conflict, parental contact needs to be minimized. Your Parenting Plan would be more detailed so all (you and the children) know what to expect…a rigid schedule, no last minute changes and no direct parental contact. Communication needs to be through texting, e-mail or notes, with just the facts, no emotion. Think of it as a business message. You all lose flexibility but gain peace of mind if parental contact is discordant.

If cooperative co-parenting is your choice, congratulate yourselves and keep it going!

If you are not able to co-parent in a cooperative manner, please make it a goal!

Sharon Klempner, MSW, LCSW, BCD

Divorce: The Leaver and the Left

For the majority of couples who come apart or divorce, to say it is a ‘trying time’ is to put it mildly. There is a loss of the hopes and dreams that most of us have when we embark on such unions, compounded by the reality that has evolved.

 

When one partner/spouse is convinced that their relationship is no longer viable and needs to be out of it, the partner/spouse doesn’t have a choice. What’s important, for both, is to realize that they are not in sync with their thoughts and feelings. Each person needs to understand the other in order to be able to part in a respectful manner, particularly when there are children involved.

 

The ‘leaver’ has made the decision that it is necessary to come apart, most often after experiencing sadness, anger, hopelessness, etc. about their situation. Most people don’t elect to take such steps lightly or quickly. They mentally slog through the disagreements, disappointments, and considerable differences between them. Both adults go through the five stages akin to having and accepting a terminal illness:

 

  1. Denial…feeling this can’t be happening to us, it’s unreal.
  2. Depression…any changes in eating, sleeping, energy level.
  3. Anger…impatience and resentment of their partner and why can’t they change?
  4. Negotiation…acknowledging the need for change and how to achieve it.
  5. Acceptance…we will be coming apart.

 

The leaver needs to realize is that their partner, who may not feel the same way about their relationship [or may, but not conclude that coming apart is the best or only solution] has time to adjust and will need to go through the same stages. The stages are generally experienced in the order listed above although people often shift back and forward, particularly in the beginning phases. It helps when the leaver understands his/her partner/spouse’s need for going through that process and presents his/her wishes gently, clearly stating the reasons for the decision and then being patient for his/her partner to catch up or, at least, be accepting to come apart.  Doing this can facilitate a somewhat less emotional and more civil dissolution of the relationship or marriage, which is important to the couple and how they each move on but even so much more essential when there are children.

 

The person who doesn’t want to end the relationship, for a multitude of possible reasons, is thrust into the first phase listed above. “This can’t be happening!” “I knew we had problems but…not this!” “How can you do this to me (and the children)?” That partner/spouse usually experiences deep sadness once the reality settles in. Everyone’s coping mechanisms vary in how this and all of the phases present. Once anger is boils up in the left partner/spouse, he/she frequently resents that their partner/spouse is doing so well and this is “easy for them”, not realizing that the leaver has, most often, suffered through the same feelings before and is just ahead of them. If that can be sincerely explained it can ameliorate a negative reaction. When there isn’t counter blaming or accusations, there can be a less traumatic coming to terms with the situation and negotiating. Then, acceptance can progress.

 

When in a relationship, it is always beneficial to mentally step into the other person’s shoes to imagine how they think and feel rather than getting stuck in our own perspective of things. When a relationship not working or the relationship is ending, it’s even more vital.

 

by Sharon Klempner, MSW, LCSW, BCD

#101 on Retirement Accounts and Deferred Compensation

Many divorcing couples are not aware that retirement and deferred compensation accounts, including IRAs, are subject to equitable distribution. Many individuals, who know that these accounts are ‘ in the pot’ to be divided, believe they have to withdraw the funds in order to transfer them – and thus pay significant penalties, taxes and interest. Thus, they think that getting their fair share is more work that it’s worth.

If you are in New Jersey, and believe either of the above, you are mistaken.

With some exceptions, in New Jersey, most assets acquired during the marriage are subject to Equitable Distribution, that is, to be divided upon divorce. This includes retirement and deferred compensation accounts, even though they are titled in the name of only one of the parties.

How does this work?

All contributions (whether by the individual or the employer) made during the marriage to pensions, 401Ks, IRAs, Deferred Compensation accounts, etc., are subject to be divided during a divorce. The percentage of the division and/or the amount you are to receive depends upon the specifics of your case.

What happens if the employee made contributions before the parties were married?

Does the employee get a credit? YES! There are specialists in this industry who use:

  • the date employment began
  • the date contributions commenced
  • the date of the marriage
  • the date of the complaint or other agreed upon cut-off date for equitable distribution

Specialists use the above information to determine the portion of the account that is pre-marital and what is in the marital pot to be divided. If your attorney specializes in family law, he/she should know qualified individuals who can make these calculations.

Some of you just read the term “cut-off” date and you’re thinking, What is that? In order for something to be in the pot, to be divided, it must have been acquired during the marriage. So the marriage, with some exceptions, is the date of the marriage until the date when one spouse files for divorce or some other cut-off date upon which the parties agree.

In addition to the specialists determining the value of the pension/deferred compensation plan, they also prepare documents known as Qualified Domestic Relations Orders (QDRO). The QDRO enables an employer to transfer a non-employee spouse’s share of the account into a separate account, without the parties having to incur taxes and/or penalties.

Note: Whenever you withdraw the money for your own use, you will have to pay the appropriate taxes, etc. A QDRO only eliminates the tax/penalty consequence for the initial transfer to the non-employee spouse pursuant to the final settlement.

It is important to learn about retirement/deferred compensation accounts during the discovery process and to obtain the appropriate documentation from an employer. Some of the documents needed include:

  • The most recent benefits statement
  • A copy of the plan
  • The date employment commenced
  • A sample QDRO or its guidelines

The reason to have a sample QDRO is that it may provide an example of what the plan does and doesn’t permit.

“It is critical to obtain all pension information during the divorce process,” states Judith Deer, Esq., President of All Pro QDRO, LLC. “So often in my practice I see parties attempting to gather information and resolve pension issues post-judgment, which is very difficult. The pensions are usually one of the parties’ largest assets and yet the least attention is paid. Be sure to thoroughly negotiate the pension benefits before the divorce is finalized.”

It also is critical to learn whether the plan permits survivor benefits. This is crucial if a person dies before the QDRO is prepared or before their benefit goes into effect. There is language that can be used to protect a non-employee spouse’s interest. This language should not only be in the QDRO but needs to be incorporated into the Property Settlement Agreement. The Settlement Agreement should have language that an employed spouse may not withdraw any funds or take any loans against the accounts until the QDRO is finalized and in place with an employer.

Additionally, a plan administrator needs to be notified as soon as possible when a QDRO will be needed so they do not place the account into payout status prior to the QDRO being instituted. Be aware that , legally, a plan does not have to put a hold on an account until there is a finalized QDRO signed by a judge, which is another good reason to get your pension benefits in order prior to finalizing your divorce.

Lorraine R. Breitman, Esq.