QDRO and PLR 200252097?

[Belgarath]

For all you QDRO experts, this may be old hat, but I found it interesting. ( I believe it was by someone named Tony Novak but I'm not positive about that. However, I'm unable to access this PLR, and when I do web searches, I come up with this one and another with the same # (the other one supposedly deals with minimum distributions.)

First, is the number listed correct, and if so, do you know where I can access a copy? Second, if not correct, do you know the correct number? And finally, do you have any experience with this type of QDRO, and are you aware of more people using it? Thanks!

The IRS recently approved a qualified domestic relations order (QDRO) in a divorce settlement that surprised tax planners and was previously thought to be not possible. Typically a QDRO is used to divide a retirement account between divorcing spouses without having the retirement plan lose its tax-advantaged status. A retirement plan can normally not be used as security for a debt. If this happens, the amount of assets in the retirement plan could be disqualified and become subject to immediate taxation plus additional tax penalties.

But in this case, a spouse wanted absolute security for money that was owed to her by her spouse, but the couple did not wish to liquidate his retirement plan. The local court issued a QDRO securing the debt with the retirement plan and the IRS approved of the arrangement. (Letter Ruling 200252097). The IRS reasoning that was the QDRO allowed under Section 401(a)(13)(B) override and satisfies the anti-alienation restrictions that normally prevent a retirement plan from being used to secure a debt.

The implications for tax planning are significant. Frequently a divorce settlement necessitates the liquidation of assets like a house and other investments. Even in situations where one spouse has a strong likelihood of high future earnings, these future earnings normally are not usually useful in negotiating a secure divorce settlement. The letter ruling allows a spouse to say "Instead of liquidating our (pre-tax or tax deferred) investment assets that we prefer to continue to use and keep intact, I will pay you $xx dollars per month from my (after-tax) earnings and my promise to pay will be secured by a court-issued lien on my retirement plan account." From a tax planning perspective, this strategy allows the couple to postpone otherwise taxable events and continue to benefit from tax-free compounding of internal value of assets. There are numerous other planning possibilities. The ultimate effectiveness of this tool will be determined by divorce attorneys' willingness to complete non-cash settlements that are based on secured promissory notes between spouses.

[Guest FormsRmylife]

I have the same PLR number cited in a 2/3/2003 article by April K. Caudill, J.D., CLU, ChFC at The National Underwriters Company. We actually worked with an attorney that used this concept.

[Harwood]

200252097 is re: "IRA is permitted to remain open in name of descendent's deceased spouse and minimum distributions from IRA may be payable to trust. Minimum distributions for tax year and future tax years will be calculated on life expectancy of decedent's oldest child using the applicable life expectancy table."

[Harwood]

You want 200252093

[Harwood]

A few odd characters but here it is:

PLR200252093.pdf

[QDROphile]

The technique is useful for securing child support payments, too. The surprised tax planners must have been lacking imagination or understanding. In that respect, they may resemble the plan administrators who will resist orders of this sort.

The orders have to be drafted correctly. In particular, they have to avoid requiring the plan to do something that the plan is not designed to do or else they will be disqualified under 414(p)(3)(a). For example, if the plan allows only lump sum distributions, the order cannot provide for the payment of amounts to the AP from time to time depending on circumstances. The orders also cannot make the plan administrator investigate or decide when payment is triggered.

[Belgarath]

Thanks Harwood, now that I've got the correct number I can access it!