Divorce Distribution - Timing and QDRO

Got a call from a client.  He and his spouse are getting a divorce.  It is amicable so he intends to give 1/2 of his plan balance to her, no problem.  They don't want to pay for the attorney to draft a QDRO.  Couple of questions:

1.   Do they need to wait until the divorce is final to complete the distribution?  Probably, just in case they reconcile because then the payout would have been premature.
2.   Do they need a QDRO?
3.   The distribution election form is asking for the QDRO checklist.  Just maybe have them create a statement stating that the account is being split due to a divorce and have them both sign it in front of a notary?

Thanks

Without a QDRO, is there any other sort of distributable event allowing the participant's distribution to be paid from the plan (and now we're talking PAID rather than TRANSFERRED to the alternate payee) ?

Ok so you are pointing out that the QDRO is required, that without a QDRO there is not a "distributable event".  

Looking at a QDRO that I received for a different plan makes me think.  Is there a boiler plate QDRO, a fill in the blank template?  Could that be used by the soon to be divorced couple and submitted to the court, signed by both parties in front of the court, then signed and ordered by the court and then time stamped by the court.  Make it all official?

If you didn't catch on, they are trying to save some $ 

IRC 401(a)(13) contains the "anti-assignment rule" which says that no part of the benefit in a qualified plan can be reassigned to a 3rd party. QDROs are one of the exceptions to this rule. That's why you have to have the QDRO if you want part of the participant's benefit to be assigned to the ex-spouse.

If there is independently a distributable event, for example if the participant is over 59½, or if it's non-deferral source and has been in the plan for a few years, then they could just withdraw whatever amount they choose and pay it over to the ex-spouse. Plan provisions permitting, of course.

32 minutes ago, Basically said:

Looking at a QDRO that I received for a different plan makes me think.  Is there a boiler plate QDRO, a fill in the blank template?  Could that be used by the soon to be divorced couple and submitted to the court, signed by both parties in front of the court, then signed and ordered by the court and then time stamped by the court.  Make it all official?

Could you find a blank QDRO template somewhere? Probably. Could you get a judge to sign off on it? Maybe. Just be careful, especially if your local jurisdiction has rules relating to the unauthorized practice of law. It's probably going to be easier and/or safer to try to find a local lawyer who can do one for you, even if you do have to pay them a few bucks for their time.

5 minutes ago, Bill Presson said:

I know they're trying to save some money. But don't let their problem become your problem. Unless you're an attorney, don't try to create a DRO.

4 minutes ago, C. B. Zeller said:

Could you find a blank QDRO template somewhere? Probably. Could you get a judge to sign off on it? Maybe. Just be careful, especially if your local jurisdiction has rules relating to the unauthorized practice of law. It's probably going to be easier and/or safer to try to find a local lawyer who can do one for you, even if you do have to pay them a few bucks for their time.

You both are correct.  I tend to want to help out too much.  I'll pass along that a QDRO is needed  otherwise there isn't a distributable event.  

Thanks for the sound advice.

Send them a copy of the Plan's QDRO procedures and let them know a QDRO is required but that is not something your office prepares.

If you do know some low cost QDRO providers in the area you might point them in their direction or tell them to ask the court who is handling the divorce.

One of the aspects of the cautions against inexperienced assistance in these matters also applies to the "other distributable event" ideas: the different  transactions have different implications, specifically including federal and state tax consequences.  The tax consequences of dividing and account by QDRO vs some other avenue for extracting money from the plan for ultimate division of the account are quite different and would change the economics of the "equal" division between the parties. It is more complicated than dividing by two and filling in some forms.

I have practiced family law for 55 years.  The last 36 years I have spent trying to learn everything I could about competently transferring pension and retirement plans benefits between divorcing couples. 

It is not clear to me in your case if you are dealing with a defined contribution plan or a defined benefit plan or or a cash balance plan.  It is not clear if the plan falls under one of the 163,000+ ERISA qualified plans, or under other Federal laws governing CSRS, FERS, FSPS and TSP, or under Military law, or whether it is one of the 10,000+ plus State, County or Municipal plans, or whether it's a Union Plan or a Church Plan or perhaps even an International plan.  

It seems that your client, who obviously performs his own surgery, is determined to be pennywise and pound foolish.  You must NOT to offer him any advice lest he screw it up and blame you.  You cannot save him but you can save yourself.   

They need a QDRO to make the transfer.  The fact that you would even ask if they need a QDRO makes it clear that this is not your area expertise.  

One sure way of being sued for malpractice and charged with failing to adhere to the Rules of Professional Conduct is to involve yourself in an area of law you don't understand. Or worse, involve yourself in legal matters if you are not a lawyer.  

David

Malpractive - Lawyer Liability in QDRO Cases - Willick.pdfTop-QDRO-Mistakes-Attorneys-Make-and-How-to-Avoid-Them (1).pdfShulman QDRO Handbook Table of Contents 2020.pdf

and a person who represents himself has a fool for a client

Assuming there was a distributable event for the participant, wouldn't they want a QDRO to avoid double taxation? Otherwise, distribution comes to participant and they are taxed; then when they transfer/pay funds to former spouse, the former spouse would also be taxed (unless under gift limit). The QDRO avoids that by letting the amount be paid directly to the former spouse.

One more thing...it's an amicable divorce...for now.

Wow,  thanks for all the priceless advice.  Yes I am no attorney and Yes I certainly do not want to be mixed up in a mess and potentially liable.  I did pass along the fact that a QDRO is required.  I did point out that otherwise there is no distributable event.   I was thanked and now await whatever comes next.