Rabbi Trust and Divorce

[Guest halka]

Is there any CLEAR authority on this ??? NQDC Participant (significant balance in rabbi trust) is getting divorced? Part wishes to divide NQDC benefits w/ spouse in same fashion as qualified plan benefits under QDRO. Appears to be some dissension as to whether QDRO applies to NQDC and, more importantly, whether the division of the NQDC can effectively transfer the income tax liability on NQDC distribution to the soon-to-be ex-spouse (e.g. LTR 9340032). Any help greatly apprectiated. THANKS

[Guest b2kates]

1. No, a QDRO does not apply to a Rabbi Trust. Rabbi Trust, by its nature is not subject to ERISA. QDRO are statutory provisions to permit the division of qualified plan benefits without violating the anti alienation rules of ERISA.

I do not have access to PLR 9340032, however section 1041 governs the taxation of transfers incident to divorce. General rule is no gain or loss recognized on transfer to spouse.

Observation, be careful that dividing Rabbi Trust does not trigger deemed distribution of the entire trust balance.

[mbozek]

B2- see my post under nonqualifed plans for a response to this question. IRC 1041 only allows a tax free transfer of property between spouses. IRS position in PLR is that nqdc is income (not property) which is subject to the assignment of income doctrine to be taxed to the emplloyee unless the parties reside in a community property state.

[Guest halka]

Thanks for the replies..... They confirmed my hasty research, the "simple" solution is to make the divorce settlement w/ respect to the NQDC account (valued net of tax projected liabilities) out of other assets. Here, the numbers just aren't letting that work. So, we'll just deal with the ex-spouse agreeing to be liable for all taxes (at Participant's rates) related to any NQDC distribution which ends up in her possession.