I prepare QDROs. Lately I've had a rash of IRA cases in which the IRA Custodian requires a "QDRO" and requires that the Account Holder sign a Letter of Instruction (which essentially recaps the "QDRO."). In addition, the Custodians usually require that the Account Holder obtain a medallion guarantee on his signature.

I know it sound like a tivial problem, but what about the case where the Account Holder is no longer around?

Has anyone successfully challenged the IRA Custodian on the LOI requirement? What techniques are you using to effect the transfer of funds for the IRAs?

I've responded by sending the IRA custodian a letter explaining that QDROs are a concept only applicable to ERISA plans and IRC sec 401a trusted plans, and that since it's insisting on a QDRO for an IRA governed by 408 rather than 401a, the custodian's insistence of a QDRO indicates that the custodian thinks that ERISA applies to the IRA. So then I also include with the letter an acknowledgment for the IRA custodian to sign that the IRA custodian is an ERISA fiduciary with respect to the IRA, with all the attendant ERISA fiduciary duties and liabilities. That usually causes them to withdraw the request for a "QDRO".

As for the LOI (medallion guarantied), I'd explain that if the IRA custodian persists, you'll recommend that the divorce attorney for the spouse of the IRA owner file to bring the IRA custodian into the divorce case as a party to it, so that the court can hold it in contempt if it fails to follow the court's order dividing the IRA.

Good for you Simmons.

All the custodian should be asking for is a copy of the divorce decree or legal separation instrument , clearly stating that the IRA is part of the settlement, and the portion of the IRA that is awarded to the receiving spouse. The document should also reference the account by number- so it is clear to which IRA the document applies.

The custodian may also require written instructions to effectuate the transfer to the receiving spouse's IRA, if the IRA ( to be credited) is not provided in the decree.

On the flip side, custodians often receive QDROs for IRA, and requests from attorneys asking the custodian to either approve a QDRO format or provide instructions on how to prepare a QDRO for an IRA. It seems there is confusion on both sides about the plans to which QDROs apply

Judges are not favorably disposed to bring in non parties for contempt hearings in civil disputes involving money because exceeding judical authority by threatening contempt against an individual /corporation over whom the court does not have jursidiction as a party to the case before the court is a frequent reason for bringing disciplinary actions against a judge. In a divorce acton the only parties are the spouses. Only CA has a provision for joining retirement plans.

An LOI is a one sentence request for a distribution which should not be difficult to fax. It may suprise some people but there are financial institutions which still have rules that require a medallion guarantee that are filed with the appropriate regulatory authorities and cannot be waived. The client should be told of the cost of filing such a request to hold the custodian in contempt and the risk that the client may be required to pay the custodian's legal fees for defending against a contempt action or waiving the requirement for a guarantee.

I would ignore postings of certain persons who seem inclined to pour gasoline on a fire instead of water because it is their clients who get burned.

Some custodians refer to the division of an IRA under IRC 408(d)(6) as a "QDRO" but do not require the formalities required for a QDRO under IRC 414(p).

To date, I've never had to resort to joining the IRA custodian as a party to the divorce proceeding.

Explaining the consequences to the IRA custodian of its persistence, as detailed in my prior post, has in my experience brought each IRA custodian around to the conclusion of asking nothing more than what Appleby suggested.