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Defining shared or separate interest QDRO


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My husband was divorced in 2019 in Ohio. The QDRO was never filed. Now we are going back to court Because his ex-wife found out, she has no claim to the nonqualified plan under QDRO’s. So she’s trying to get additional compensation for the nonqualified.

 His divorce decree states that ‘’the plaintiff shall be awarded 50% of the marital portion of the defendants retirement plans both qualified and unqualified. The marital portion shall be determined using a covert fraction. The termination date for the marriage shall be January 16, 2019.

Until such time as a defendant retires, the plaintiff shall be maintained as the beneficiary of said account. The portion of the retirement account awarded to the plaintiff shall be transferred to plaintiff via QDRO free of tax consequences to the defendant, or the Plaintiff. Plaintiff shall be solely responsible for any tax consequences associated with premature distribution of the funds awarded to her. Subsequent to the transfer to the plaintiff of her share of the defendant's retirement accounts, including accumulated games. Plaintiff agrees to waive any further claim to these retirement accounts.’’ 
 

We recently found out that she is terminally ill. We are raising their 14- and 15-year-old children that she legally adopted with my husband, who is their biological grandfather. I’m sure she is going to want a separate interest and we want it to be shared. She has not had anything to do with the children in the past 4 years. my husband is still working at age 72 and plans to retire within the next 3 to 4 years. One would think with her being terminal she would want the money to go to the children, but she does not. So, would you define what’s in our divorce decree as shared or separate?
 

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1.  Is "games" supposed to be "gains"?

2.  There is a recent discussion thread that suggests non-qualified plans are unlikely to recognize a QDRO. https://benefitslink.com/boards/topic/71731-how-likely-is-it-that-an-unfunded-deferred-compensation-plan-does-not-recognize-domestic-relations-orders/

3.  Any qualified plan will not care what's in the divorce decree, rather what is in the DRO.

4.  All of your questions should be addressed to your attorney.

5.  Probably "separate", but that is just my opinion.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Yes, games should be corrected to gains. My question is not  about the nonqualified. It is about the qualified, whether it is shared or separate interest QDRO. We were told by my husbands plan administrator the language in the divorce decree would dictate if it’s shared or separate. It’s not clear to us, and I don’t believe our attorney understands it either.

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Are you saying the lawyer who wrote the terms of the decree does not understand whether the property interest described is a shared interest or a separate interest?

I do not like the terms “shared interest” and “separate interest”, but I think I know what people mean when they use those terms. It looks like a poor attempt to describe a separate interest. That makes it confusing for everyone, and dangerous because of the uncertainties.

The use of the term “retirement account” strongly implies that the plan is a defined contribution retirement plan. I have never seen a “shared interest” QDRO applicable to a defined contribution retirement plan. The phrase, “Until such time as the defendant retires” throws a curve into the interpretation and analysis. It does not make sense in the context of a defined contribution retirement plan and it does not properly describe the status of an alternate payee as a beneficiary, although an alternate payee is treated as beneficiary.

I suspect that “covert” is intended to be “coverture”.

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Back to my dislike of the shared interest and separate interest terminology — those terms are just shortcuts to describe a conceptual framework. They do not matter themselves and they are not precise. What matters to the plan and the parties is how the legal documents define the interest to the spouse/alternate payee (“plaintiff” in your case) and describe the disposition of the interest.

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The terms “shared interest” and “separate interest” are used a lot in DROs for splitting benefits earned under defined benefit plans but could also apply to defined contribution plans as well. Attorney should be able to help you to answer questions and to draft a DRO. You can find more information here:

Qualified Domestic Relations Orders and PBGC | Pension Benefit Guaranty Corporation

QDROs The Division of Retirement Benefits Through Qualified Domestic Relations Orders 2020 (dol.gov)

FAQs about Qualified Domestic Relations Orders (dol.gov)

FAQs Drafting Qualified Domestic Relations Orders (dol.gov)

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See my comments in bold type...

My husband was divorced in 2019 in Ohio. The QDRO was never filed. Now we are going back to court Because his ex-wife found out, she has no claim to the nonqualified plan under QDRO’s. So she’s trying to get additional compensation for the nonqualified. Correction.  She has a right to a share of his non-qualified plan benefits but cannot use a QDRO to collect it.  Only a very few companies will enforce a non-qualifed plan pursuant to a QDRO-like Court Order.  I am assuming that when you use the words "QDRO" and "qualified" and "non-qualified" you are referring to a Plan created/qualified under the Federal law known as ERISA.  If not, none of my comments may apply.  

 His divorce decree states that ‘’the plaintiff shall be awarded 50% of the marital portion of the defendants retirement plans both qualified and unqualified. The marital portion shall be determined using a covert coverture fraction. The formula in most states that follow the "time rule" is to take 50% of the retiree's annuity payments if, as and when received, and multiply it by a fraction, the numerator of which is the number of months during the marriage that the Participant accrued creditable service toward retirement, and the denominator of which is the number of months of creditable service accrued by the Participant at the time of retirement.   But this language applies to defined benefit plans and a shared interal allocation of benefit, that is, a pension, where, for example you retire at age 65 with a certain number of years of service and a certain income history and you receive a pension for some period of time, normally for for the rest of your life, and your spouse or former spouse receives a share of that retirement annuity and a survivor annuity upon your death that will last for the rest of her life.  The termination date for the marriage shall be January 16, 2019.

Until such time as a defendant retires, the plaintiff shall be maintained as the beneficiary of said account. ??? The word account does not normally apply to defined benefit plans. The portion of the retirement account Whoops.  Now I am certain that you are talking about a defined contribution plan, like a 401(k) or a 403(b) that is to be transferred to the Alternate Payee a tax free lump sum rollover to the Alternate Payee's IRA or other eligible retirement account.  So we come face to face with the reality that in order to provide you with any assistance I need to know the exact name of the 163,000 ERISA qualified plans you are dealing with and I must read the exact language of the Divorce Decree.  I assume you would want your neurosurgeon to take a look at an MRI of your head before he performs brain surgery.  Same thing.  awarded to the plaintiff shall be transferred to plaintiff via QDRO free of tax consequences to the defendant, or the Plaintiff. Plaintiff shall be solely responsible for any tax consequences associated with premature distribution of the funds awarded to her. Subsequent to the transfer to the plaintiff of her share of the defendant's retirement accounts, including accumulated games. Plaintiff agrees to waive any further claim to these retirement accounts.’’ 
 

We recently found out that she is terminally ill. We are raising their 14- and 15-year-old children that she legally adopted with my husband, who is their biological grandfather. I’m sure she is going to want a separate interest and we want it to be shared.  I don't understand.  If she is terminally ill what does she care wherther she has a shared interest or a separate interest.  I am pretty sure you have no idea what those designations mean.  Read the attached Memo.  If you are dealing with a defined benefit plan and the Participant has not yet retired, the rule is almost always: 

"If the Alternate Payee predeceases the Participant prior to the commencement of her benefits, the Alternate Payee's assigned share of the benefits, as stipulated herein, shall revert to the Participant. Should the Alternate Payee predecease the Participant after her benefit commencement date, then such remaining benefits, if any, will be paid in accordance with the form of benefit elected by such Alternate Payee."

Since there is no QDRO in place and since it sounds like the judge did not make it clear what he/she intended, and since the Alternate Payee doed not have the option to immeidately elect to begin her separate interest and name a beneficiary on her death, the odds seem pretty good that she will die before commencement of her benefits and her benefits wll revert to the Participant.  Game, set, match.  She has not had anything to do with the children in the past 4 years. my husband is still working at age 72 and plans to retire within the next 3 to 4 years. One would think with her being terminal she would want the money to go to the children, but she does not. So, would you define what’s in our divorce decree as shared or separate?  

Shared v. Separate - 02-18-2022.pdf

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