The QDRO: NOT the Horror Story You Think It Is

*At the outset, I should say that QDRO’s CAN be a tricky, but only insofar as there are rules that have to be followed, and they don’t actually apply to all the different types of retirement plans that are out there.  And if you have a lot of different financial assets, or a bunch of different retirement accounts, or have a super complicated algorithm you’ve agreed to to calculate how much each person is getting, you’ll be dealing with a much more involved process.  But for the rest of us, the thing that MOST affects the complexity is waiting for years to file one.  But let’s not get ahead of ourselves…

~~ALSO–This article is not intended to substitute for legal advice. It is for information ONLY. Consult with an attorney in your jurisdiction for legal advice.~~

THAT is a horror story…

“QDRO” is an acronym for the term Qualified Domestic Relations Order.  If you’ve been through a divorce where a retirement plan was divided as property, you’ve probably heard the term (though you may not have known what it meant.)  Federal law was enacted decades ago to prevent a worker’s retirement funds from being garnished or otherwise taken away from that person, strictly because it diminished the person’s financial security after they retire (and could lead them to being dependent on government programs.)  That law is found at Title 29 of the United States Code, Chapter 18.  It’s called ERISA (Employee Retirement Income Security Act).  Under ERISA, certain plan retirement accounts cannot be garnished, assigned, or otherwise “alienated” from the person who owns the account under the plan.  EXCEPT.  Except when there is a division of the account in a divorce, and ONLY if a Qualified Domestic Relations Order has been entered.

There is a difference between a “Qualified” Domestic Relations Order and a Domestic Relations Order.  QDROs only apply to ERISA retirement plans.  I don’t want to get into the weeds too much on what makes a retirement plan ERISA qualified (mostly because that’s really not my area of expertise).  But as a general statement, the types of plans that are covered under ERISA are non-government pension plans, profit sharing plans, 401(k) plans, and certain employee stock ownership plans.  The one most people will be dealing with is the 401(k).

So what are the Magic Legal Words you have to use to make a QDRO actually “qualified”?  In a nutshell:

• The Order must clearly state the name and last known mailing address of the plan participant AND the name and last known mailing address of the Alternate Payee.  And you MUST use that term—Alternate Payee—to describe the person who is getting a portion of the account funds.
• It must state the amount of money that’s being awarded to the Alternate Payee, OR
• It must clearly state how that amount is to be determined. (For Example: One half of the funds that existed in the account as of the date of divorce, or one half of the value of the account, less amounts that existed in the account as of the date of the marriage, with the date of marriage provided in the QDRO.)
• The Order must state how many payments are to be made to the Alternate Payee, or what time period the Order applies to.

And

• It has to specifically state what plan the Order applies to (Like “ABC Company 401(k) Plan”).

Notice that if the Order is making a division based on a calculation that you don’t have to actually do the math in the Order.  The plan administrator does that for you; you just need to be totally clear on how it’s to be calculated.  This is generally stated in the divorce decree, so you’d just need to copy the instructions from the decree into the QDRO document.

ALSO—to be “qualified,” the Order MUST NOT

• Require the plan to distribute any benefit that wouldn’t actually be available to the plan participant under the plan (like, it can’t say that the alternate payee gets payments from the plan before the participant would be allowed under the terms that already exist.)
• It can’t require the plan to pay out more money than it’s actually valued at (for instance, it can’t give someone $10,000 if the account is only worth $7,000.)

And

• It can’t assign benefits to a new alternate payee that were already assigned to a DIFFERENT alternate payee (think: second marriage/divorce, and the retirement account was already divided with the first wife…second wife doesn’t get ½ of the total, because ½ of the total is already first wife’s.  Second wife could only get ½ of the husband’s portion that’s still in the account.)

It’s also a good idea to include the last four digits of the plan participant’s and alternate payee’s social security numbers and/or birthdates, just to clarify WHO these people are.  And you need to state that the QDRO is being entered pursuant to a domestic relations order that was entered in a court with jurisdiction to make the division, and what the date of divorce is.

Because you DO want this to be you one day, right?

So you’ll need to wait to finalize the divorce before you prepare your QDRO, but you should NOT wait too long.  See, that’s one of the things that really makes these more complex.

Let’s say that you’re divorced on October 1, 2019.  The divorce says you’re entitled to ½ of the value of the account as of the date of divorce.  So what happens if you wait 5 years file your QDRO, and in the meantime, the plan participant took a loan against the account, and now the total value is less than your half would’ve been as of the date you got divorced?  You are still entitled to your half of the account as it existed on October 1, 2019, but how do you expect to get it?  OR, you’re entitled to ½ of the value of the account as of the date of the divorce, plus any losses or gains that it’s experienced up until the date the account is divided….but the account has lost half of its value by the time you file the QDRO 10 years later (like when the market crashed in 2008, for example.)  You just lost a huge chunk of what you’d have been entitled to but for your taking a decade to get the QDRO done.  Or if there were gains…calculating the gains would be as to your portion only, not your ex’s.  See?  Much less straightforward.

So as far as actually preparing the QDRO goes, it’s not rocket science.  Here’s an example of some basic language that would work to make your “domestic relations order” a “qualified” one (The Magic Legal Words):

1. Parties: The parties hereto were husband and wife, and a divorce action is in this Court at the above case number.  This Court has personal jurisdiction over the parties.  The parties were married on [DATE], and divorced on [DATE the court signed the Decree].
2. Participant Information: The name, last known address, social security number, and date of birth of the plan “Participant” are:  [Name], [Address]; [social security number]; [birthdate].
3. Alternate Payee Information: The name, last known address, social security number, and birth date of “Alternate Payee” are:  [Name], [Address]; [social security #]; [birthdate].
   1. The Alternate Payee is the spouse or former spouse of the Participant. The Alternate Payee shall have the duty to notify the plan in writing of any changes in mailing address subsequent to the entry of this Order.
4. Plan Name: The name of the Plan to which this Order applies is the [Name of the 401(k) plan] (hereinafter referred to as “Plan”), administered by [Company].
   1. Any changes in Plan Sponsor or name of the Plan shall not affect Alternate Payee’s rights as stipulated under this Order.
5. Effect of this Order as a Qualified Domestic Relations Order: This Order creates and recognizes the existence of an Alternate Payee’s right to receive a portion of the Participant’s benefits payable under an employer-sponsored defined contribution plan that is qualified under Section 401(k) of the Internal Revenue Code (the “Code”).  It is intended to constitute a Qualified Domestic Relations Order (“QDRO”) under Section 414(p) of the Code and Section 206(d)(3) of ERISA and the Retirement Equity Act of 1984, P.L. 98-397.
6. Pursuant to State Domestic Relations Law: This Order is entered pursuant to the authority granted in the applicable domestic relations laws of Utah.
7. Provisions of Marital Property Rights: This Order relates to the provision of marital property rights as a result of the Decree of Divorce between the Participant and the Alternate Payee.
8. Amount of Alternate Payee’s Benefit [this paragraph should be customized to reflect the Decree as ordered in the parties’ case.]
9. Commencement Date and Form of Payment to Alternate Payee: If the Alternate Payee so elects, the benefits shall be paid to the Alternate Payee as soon as administratively feasible following the date this Order is approved as a QDRO by the Plan, or at the earliest dated permitted under the terms of the Plan Benefits will be payable to the Alternate Payee in any form or permissible option otherwise available to participants under the terms of the Plan, except a joint and survivor annuity.
10. Alternate Payee’s Rights and Privileges: On and after the date that this Order is deemed to be a QDRO, but before the Alternate Payee receives a total distribution under the Plan, the Alternate Payee shall be entitled to all of the rights and election privileges that are afforded to Plan beneficiaries, including, but not limited to, the rules regarding the right to designate a beneficiary for death benefit purposes and the right to direct Plan investments, only to the extent permitted under the provisions of the Plan.
11. Death of Alternate Payee: [It’s a good idea to address what happens to the alternate payee’s portion if they die before all the funds are distributed].
12. Death of Participant: [Spell out who gets the funds if the participant dies before they’re all distributed].
13. Savings Clause: This Order is not intended, and shall not be construed in such a manner as to require the Plan:
    1. to provide any type or form of benefits or any option not otherwise provided under the Plan;
    2. to provide increased benefits to the Alternate Payee;
    3. to pay any benefits to the Alternate Payee which are required to be paid to another alternate payee under another order previously determined to be a QDRO; or
    4. to make any payment or take any action which is inconsistent with any federal or state law, rule, regulation or applicable judicial decision.

_____________________________________________________________________________________

I recognize that that language probably looks like just so much Gibberish to some–which would seem to make QDROs super hard to put together.  HOWEVER, in my practice, I found that a LOT of companies that had employee retirement plans that could be divided by a QDRO already had their own QDRO template that they liked to use.  I could contact the company’s plan administrator and ask them to email me a copy (or in the Bad Old Days, mail me a hardcopy I could then copy and type up), and it would have all of this information in it already, with all the Magic Legal Words & Phrases.  I just needed to put in the specifics of the case I was working on.  Generally they’d want to get a copy of the court-signed Divorce Decree before sending me the template, which is another reason you need to wait until the divorce is finalized to prep your QDRO.

Obviously there’s more to QDROs and separating out retirement accounts that exists in practice.  But truly, if you use the terms required (or the template the plan administrator sent you), and get it done soon after the divorce is final, you’ve won half the battle.  If your attorney tells you that they’re going to charge you a ton of money for a QDRO for a super-basic, one ERISA qualified retirement account division, maybe give it a try yourself.  You don’t have to be an attorney to get the Magic Legal Words included in the Order…You just need to know what they are.

P.S.

To Note:  NOT covered under ERISA are state and federal retirement/pension plans, military retirement, severance package type private employer benefits, and IRAs (Individual Retirement Accounts).  YOU DO NOT USE A QDRO TO DIVIDE THESE NON-ERISA PLANS.  They have their own types of forms/Orders, so don’t try to use a QDRO to divide them.  I found that the State of Utah had a packet with information and a template to give instructions on dividing their state retirement plans, so again, it doesn’t have to be a horror story.

PPS.

For a bit more information on this topic, check out the IRS website, here:  https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qdro-qualified-domestic-relations-order 

and from the Department of Labor, here:  https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/qdro-overview.pdf

Joint & Separate Debts in Marriage…What ARE you on the hook for?

*This is a Utah specific post.  Division of and liability for debts of married people is not the same in every state.  Check your own law for how this works if you are NOT in Utah.

In UCA § 30-3-5(1)(c) it states that within a divorce decree, the court shall include provisions spelling out who is responsible to pay joint or marital debts.  Joint debts would be any that you and your spouse are both signors on–the debts in both your names.  It’s common for married people to have joint credit cards, both their names on car loans, mortgages, etc.  “Marital” debts, however, would include those that are in just one person’s name, but the debt was for a household purpose.  UCA § 30-2-5, NOT in the divorce code, but just in the section about Husband and Wife (or more appropriately now, Spouses), talks about separate debts of married people.  It says:

Reality Bites.

“(1) Neither spouse is personally liable for the separate debts, obligations, or liabilities of the other:

(a) contracted or incurred before marriage;

(b) contracted or incurred during marriage, except family expenses as provided in Section 30-2-9;

(c) contracted or incurred after divorce or an order for separate maintenance under this title, except the spouse is personally liable for that portion of the expenses incurred on behalf of a minor child for reasonable and necessary medical and dental expenses, and other similar necessities as provided in a court order under Section 30-3-5, 30-4-3, or 78B-12-212, or an administrative order under Section 62A-11-326; or

(d) ordered by the court to be paid by the other spouse under Section 30-3-5 or 30-4-3 and not in conflict with Section 15-4-6.5 or 15-4-6.7.

(2)  The wages, earnings, property, rents, or other income of one spouse may not be reached by a creditor of the other spouse to satisfy a debt, obligation, or liability of the other spouse, as described under Subsection (1).”

UCA § 30-2-9, referenced above, defines what a family expense is that both spouses are liable for. Family expenses “are considered expenses incurred that benefit and promote the family unit.”  And a creditor can come after BOTH spouses for those, even if one’s name isn’t technically on the contract that created the financial obligation.

So let’s look at some examples of what this all means in everyday life.

Let’s say you’re married, and you buy a house with your spouse.  Maybe the house title and the mortgage are only in one spouse’s name, however, for whatever reason, but  you’ve both lived in it your whole married lives.  You run into some financial difficulties…maybe the spouse with the mortgage in their name loses their job.  Can a creditor garnish the wages of the other spouse to cover the mortgage debt?

Under Utah law, Yes.  While the house is only in the name of the now-unemployed spouse, it’s arguably a family expense–both of you live there, the debt was incurred to “benefit and promote the family unit.”

So how about another example…

I’m on my second marriage.  Let’s say I buy a car for my child from a previous marriage to drive.  It’s never used by my spouse; he’s not on the loan, he didn’t have anything to do with the kid getting the car, the kid doesn’t live in our house with us–totally a separate thing.  I have a loan on that car my kid drives.  Would my husband be liable to my bank to pay that debt if I defaulted on the loan?

Under Utah law, No.  That car is NOT a family expense, by definition.  It was not purchased to promote the family unit, or advance a family goal.  It’s a straight up separate debt.

Whose horse is it, anyway…?

You could apply the statutory definitions about joint and separate debt to credit card debts as well.  A credit card just in my husband’s name that he uses to buy groceries for the family, or to pay for a family vacation, is a credit card that the creditor could come after me for if the hubby stopped making the payments.  On the contrary, a credit card just in MY name, that I use for my own business expenses, or that I paid for a trip just for me with, or that I use for my own Mad Money, if you will, would be entirely MY debt obligation–the creditor can’t go after my husband for that debt if I stop paying on it.

In Utah, the big thing to consider is whether the debt has been comingled.  Let’s take that house example up there, and make a few tweaks to the story.  Dan buys the house when he’s still single, and lives in the house alone until he meets Doug.  Doug and Dan get married, they stay in the house as a married couple for 20 years, then Dan loses his job and stops making the payments.  Could the mortgagor come after Doug for payment–garnish his wages, etc?  In this case, they could.  Because the house has lost its separate property-ness by being used by both spouses as their marital home.

Another tweak to the story of Dan and Doug:  Let’s say that Dan and Doug get married, buy a home together, and Dan moves out of his premarital home.  This time, however, Dan keeps the house he had before he got married, and rents it out.  So long as he doesn’t mingle the funds from the rental with the funds that are Family Funds–rent doesn’t come into a joint checking account, Dan doesn’t use money from the joint checking account to make repairs, etc.–that house of Dan’s stays his sole obligation.  The mortgage company can’t garnish Doug’s wages on that house if Dan quits paying, because it’s not a family expense.

The point with all this is that it’s NOT just an issue to address in a divorce.  I did a blog post recently about division of debts in divorce; THIS article is about how debts affect your married life.

Issues around money and how it’s used in a marriage are one of the leading causes of divorce.  Having a little knowledge about how your spouse’s debts can impact you is important–both for your own financial stability, and for the stability of the marriage.  If you and your spouse have different goals or priorities in life, and money gets involved, maybe keep an eye out to protect yourself a bit.  Because nothing will blow up a marriage like losing everything you have because of a spouse’s bad financial habits…..

……or your own, for that matter.

Dealing with Debt Collectors: A Peek at the Fair Debt Collection Practices Act (FDCPA)

For the full text of the Fair Debt Collection Practices Act, see the Federal Trade Commission’s (FTC) website.  This is federal law; it applies in whatever state you’re in.

When I got divorced back in 2005 I was essentially starting from less than zero.  I had a few credit cards in my name, and I used those to fill in the gaps in my income.  Not necessarily the wisest thing ever, but you do what you’ve gotta do when you’re in dire straits.  Even after law school I struggled with debt and keeping up; I got my degree after the crash in 2008, and jobs were scarce where I needed to live.  I went into private practice working for myself, but getting paid can be very hard if your clients are as broke as you are–and mine mostly were.  As a result, I got behind on some of my debts.

I’m not a unique case with that.  Lots of people do; and when they do, the debt collectors start coming out of the woodwork.  Sometimes the debts are legitimately owed.  Sometimes, though, they’re not.  So how do you deal with it when they’re not–or even if they are, but you aren’t sure if the amounts are accurate, or what the terms originally were? And what do you do about the incessant calling at all hours of the day and night, or the threatening letters?

He’s outta business…

This is where the Fair Debt Collection Practices Act (FDCPA) comes into play.  The FDCPA was enacted to keep debt collectors from engaging in threatening, harassing, abusive practices as they attempted to collect money from people.  There are limits to the hours during the day they can call, and if/when they can call you at work, and what their communications can look like.  I’ll let you read through the section about communications (§805) yourself; you need to be aware of the rules.  I want to get into the part about requiring a collections agency to validate a debt, and what you should be doing when you get collection notices.  That’s in §809, Validation of Debts.

You will usually get a notice in the mail that a debt has gone into collections.  However, it may not have enough details for you to know exactly what debt they’re talking about, or maybe you didn’t realize the debt was owed.  The notice you get MUST tell you that you have the right, within 30 days of getting the initial notice, to write and request evidence of the debt, of the name of the original creditor if the debt has been sold, anything that would support the debt collectors position that you owe money.  Your job then is to write them back and request all that information.  Language for your letter could look something like this:

“I received a letter from you dated (Month/Day/Year) stating I owe a debt.  I AM CONTESTING THAT DEBT.  Please send me any evidence you have of the debt, including copies of any contracts signed by me, the identity of the original creditor (if you don’t recognize the entity collecting the debt), and an itemized statement of the amounts you claim I owe.  Please cease contacting me regarding this debt until and unless you provide this information.”

The creditor is REQUIRED BY LAW to get you the information you’ve requested about the debt.  But what if what they send you STILL doesn’t prove that the debt is one you owe?  For example, what if you got divorced a year ago and a creditor is coming after you for a bill your ex incurred after the divorce was final?

I had this happen to a client; this is where you have to get Tenacious.

It’s quite likely that the creditor will provide evidence that a debt is owed.  You may be totally aware that there’s an outstanding debt.  That is NOT evidence that YOU owe the debt.  So you write back again:

“I received the documentation you sent.  I AM STILL CONTESTING THIS DEBT.  The evidence you provided only shows a debt is owed.  It does not show that I owe this debt.  Please provide me with a copy of a contract or some other agreement that I signed indicating that I agreed to pay this debt.”

This is what Tenacious looks like…

It doesn’t always get them off your back; sometimes you end up filing complaints with the FTC, the attorney general’s office in your state, the Better Business Bureau…but I’ll tell you this:  In my experience, when I have contested a debt that did not belong to me, and got Tenacious, I have not ended up paying it.  Ever.  The creditor drops it, and they don’t ding my credit.  I’m making it hard for them–it’s taking them too much time to go after me.  And you know what?  It’s not my job to make it easy for a creditor to collect from me when I don’t owe them anything.

They go after the low hanging fruit.  I’m not a fruit.  Don’t you be either.

Getting Your Debt Together: Financial Info in Divorce (& Life)

I’ve done a couple of blog posts on property and debt division in divorce (and marriage), but what if you don’t know what your debts are?  It is not uncommon for one spouse to hide debts from the other, or to get credit in the other spouse’s name.  Depending on the state you’re in, you might be liable for debts your spouse takes on, even if you’re NOT named as a debtor on the obligation. And maybe you don’t have that great of a handle on YOUR outstanding debt.  This would be a great time to get that figured out.

Your #1 best starting place for figuring out your debt is to get copies of your credit reports from all 3 main credit bureaus in the U.S.  These are Experian, Equifax, and Transunion.

The Big 3 in the U.S.

Credit bureaus keep track of your credit history–the good, the bad, and the ugly–as well as names you’ve used, employers you’ve worked for, addresses you’ve lived at, phone numbers you’ve had, etc.  Any agency you’ve ever owed money to (including your cellphone provider, the power company, etc.) can report to a credit bureau how well you did at paying your bill.  Your current debts will show up in your credit report–that’s the important thing for this little exercise you’ll be doing to get your financial info together.

 

You can request your credit report for free from all three credit bureaus once a year.  The Federal Trade Commission (FTC) has a button on their website that you can click into and go through the process of getting all 3.  You may be able to download a PDF of your credit report; they may require you to mail in a form to get one or all of them.  I just requested all 3 of mine; 2 of them I downloaded PDFs, and one I had to fill out the form for.  You CAN use one form to get all 3.

This is what the form looks like…see the middle bottom–you can select all three.

Each of the credit bureaus ask different “verifying” questions online to get your credit report.  They’re making sure it’s You asking for it.  Some of the questions are more involved than others (Transunion asked a question that all I could think was “HUH?”, so I marked “none of the above.”  Which turned out to be the right answer.)  These are usually questions about where you’ve worked or if you have or have had a loan with a particular agency at some point.

You should be keeping up with your credit report regardless of whether you’re going through a divorce or not.  That’s how you make sure you’ve not been a victim of identity theft.  And since all kinds of circumstances call for agencies or individuals to pull your credit (like if you’re renting a home/apartment, or trying to buy a car), it’s best to be apprised of what’s there.

There are also apps out there for your smartphone that help you keep up with your credit.  CreditKarma is one; Experian even has an app.  Do a search on your app store for “credit report,” and you’ll see a few different options, some for free, some paid.  I have a credit card app that has the option of getting your credit score as a click button at the bottom of the screen.

If you find errors in your credit report, you can communicate with the credit bureaus to get those corrected.  In my experience, that can be difficult, but you still have to use their process.

So now you know.  There is no excuse NOT to get informed about your credit.  Ignorance is not bliss; get your credit reports and make sure you’re not ignorant about your finances.

 

Websites for the three big credit bureaus are here:

https://www.experian.com/

https://www.equifax.com/personal/

https://www.transunion.com/

Resources

I was made aware tonight that I need to add some links to resources for those who find themselves on the “low income” end of life either during or after a divorce.  Divorces can be financially devastating, besides being an emotional beating, and there ARE some places you can turn to for help.

Utah Department of Workforce Services has resources for housing help, help paying utility bills, help buying groceries, help with medical expenses, and help finding work.  My experience with DWS has been quite positive (who knew a lawyer would ever need foodstamps??)  They were considerate, kind, and pointed me in the direction of the resources I qualified for.  And honestly, knowing that I wouldn’t have to worry about how I’d feed my kids when they were with me was a HUGE load off of my mind.  Swallow your pride.  Do what you need to do, and remember:  This is Temporary.

Utah Domestic Violence Coalition offers links/information regarding temporary housing for victims of domestic abuse in the state of Utah who need to LEAVE their current living circumstances immediately for their own safety.  But beyond just providing housing, local shelters also have information regarding resources for housing help, help getting money to pay for schooling to improve your job skills, and counseling, if you need it (and we DO need it sometimes to get our heads back on straight and give us confidence to move forward).  Abuse is not just physical (welcome to my world.)  And the emotional toll it takes can be devastating.  Use the resources that are there.  Put yourself in a position to help yourself.

If you don’t want to go into a shelter to get housing information, in Cache Valley/northern Utah check out Bear River Association of Governments housing assistance (BRAG) for help getting into more affordable housing.  There are waiting lists, but don’t be scared by that.  Be proactive; it can only help.

In the Cache Valley area, Bear River Health can provide immunizations and other health tests for a significantly reduced cost (or free, if you qualify).  Check them out if your kids need pre-K shots, or for basic wellness help.  Just about every area of the country offers health department aid to low income folks (I utilized Idaho’s District 7 Health Department for a significantly reduced rate well-woman check when I was living in southeast Idaho with my folks, was making very little money, and had no insurance.)

For assistance with food, contact the Cache County Food Pantry.  Or to donate.  Life is a lot easier to handle if your and your family’s basic needs are met.

This is not the End All, Be All of lists for finding help after/during a divorce.  If you have information regarding other agencies/organizations that assist people who are going through hard times please let me know.  Put links or names in the Comments section, and I’ll get them added.

And finally:  I don’t know how long it will take until your situation improves.  Mine has been so-so….It’s gotten much better recently :).  But we’re talking about a DECADE out from my divorce.  It’s still a struggle, in part because I’m still kind of emotionally bruised.  But remember this:  Once you’ve pulled yourself up, even if just a little, turn around and HELP another.  Even if it’s just by pointing them to this little blog posting with links to places help can be found.  Or just by providing a little emotional/moral support when another is feeling like she/he is being beaten to pieces.

YOU CAN DO THIS. YOU ARE NOT ALONE.

You Can Do It!!