Qualified Domestic Relations Order “QDRO”

It is well settled that pension plans are marital property subject to equitable distribution. Thus, when divorcing, it is important to ascertain what, if any, pension plans exist. The Court of Appeals has held that because marital property is that which is acquired after the marriage and before the execution of a separation agreement or commencement of a matrimonial action, it is necessary to separate from the plan what interests a spouse may be entitled. This is accomplished by comparing the number of months from the date of the marriage to the date of the commencement of the action against the total number of months of employment.

Once this is figured out, how does the pension plan administrator know to pay a former spouse? The answer is the Qualified Domestic Relations Order, commonly referred to as the QDRO. This court order requires that the plan administrator separate a designated portion of the employee spouse’s account into a separate account for the non-employee spouse. A QDRO must: (1) recognize the existence of an alternate payee’s right to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a participant under a plan; (2) meet certain technical requirements. These requirements are: (a) the order must specify the last known mailing address of the participant and each alternate payee covered by the order; (b) state the amount or percentage of the participants’ benefits to be paid by the plan to each alternate payee or the manner in which the amount or percentage is to be determined; (c) the number of payments or period to which the order applies; and (d) each plan to which the order applies. In addition to the above, the QDRO must not: (1) require a plan to provide any type or form of benefit not otherwise provided in the plan; (2) require the plan to pay increased benefits; and (3) require the payments of benefits to an alternate payee which are required to be paid to another alternate payee under another QDRO.

An important provision in a QDRO that must not be over looked deals with when the non-employee is allowed to collect benefits. Make sure that the Court directs that the alternate payee be entitled to receive pension benefits upon the employee’s actual retirement eligibility date vice the day the spouse retires. This avoids a spouse waiting for the ex-spouse to actual retire. For example, if your ex-spouse is able to retire at 62, but decides to keep working past that date, you want to make sure that you are able to collect at 62 vice some date in the future. Additionally, as a practical measure, you want to make sure that the plan has a survivor benefit in your favor. That way, in the event your ex-spouse passes away, your benefits are protected.

LEARNING POINT: When dealing with pension plans, it is important to have them evaluated and if appropriate, have a QDRO entered. Of course, in negotiating a settlement, you may want to waive off your rights to a pension in exchange for a lump sum payment or some other asset. As the owner of the pension, you may want to offer a buyout of benefits. For example, if you are divorcing it is possible that sometime in the future you may want your pension to go to someone other than your ex-spouse. In that case, you may want to figure out a way to offset the rights your soon to be ex-spouse is entitled. These are complicated matters which we will be happy to guide you through.

Qualified Domestic Relations Orders

Pensions Are Marital Property Subject To Equitable Distribution

The Court of Appeals has held that vested or matured rights in a pension plan, whether the plan is contributory or not, is to be considered marital property subject to equitable distribution. The basic rational for this decision is that the money that went into the pension, during the marriage, is money that would have been given to the marriage but for the diversion to the pension plan. In distributing the pension benefits, the Court may order the employee spouse to grant the nonemployee spouse survivorship benefits. Should the Court direct this course of action, the non-employee would receive the increased benefits upon the death of the employee.

How do Courts treat non-vested pension plans? The Court of Appeals held that non-vested plans do not preclude equitable distribution. The rationale is that your right to the plan is continually accruing during the years. There are two approaches to the valuation and distribution of a non-vested plan. The first is to calculate the present cash value of the pension, with a discount since the plan has not vested. The discount will take into account factors such as the pension not actually vesting due to termination of employment or other issues which will terminate the pension. The second approach is to allocate a portion of each future payment to the non-employed spouse. The Court of Appeals suggested that the second approach is best only in the event that the present value cannot be determined.

Another concern that must be addressed is how much of the plan is subject to equitable distribution. There are cases were the marriage will terminate as a result of the divorce yet, the plan will continue to grow in value. What you can generally expect is that the Court will consider at the total amount of months from the date of the marriage to the date of the commencement of the action against the total amount of number of months of employment. Therefore, where a spouse continues to work after the commencement date, which is typical, the benefits earned after the commencement date will not be subject to marital distribution.

How is the administrator of a plan to know to make payouts to your spouse and in what amount? You will need to obtain a Qualified Domestic Relations Order, better known as a “QDRO.” The QDRO must specify the name and last known mailing address of the participant and of each alternate payee covered by the order; the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee or the manner in which the mount of percentage is to be determined; the number of payments or period to which the order applies; and each plan that the order applies to.

LEARNING POINT: Evaluating a pension plan is a complicated process which one should not attempt alone. There are many different approaches in evaluating the plan and if necessary protecting your assets. If you are getting divorced and either you or spouse has a pension plan, contact us immediately to begin preparing your case.

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How Does Divorce Affect A Business Partnership?

During your marriage, your spouse opened up a professional practice and over the years it has grown. You are now getting divorced and your question is, are you entitled to any part of this business? In New York, it is clear that professional practices (law firm, medical, dental etc.) established during the marriage and prior to the commencement of a matrimonial action or execution of a separation agreement is marital property and subject to equitable distribution. Additionally, even if the practice in question was established before the marriage, the appreciation of value of the practice, where there have been contributions by the non-professional spouse, is marital property subject to equitable distribution. What will not happen, however, is that you are awarded interest in the practice. For example, if your spouse built a law practice and you are not an attorney, the Court will not say that you are now a partner of the practice. What the Court will do is to value the practice and award an offsetting interest in the other property to the non-professional spouse or, if those funds insufficient, order a distributive award to the non-professional spouse.

How will the Court value the practice? The court will analyze the value of the tangible physical assets. In addition, it will look to the good will of the practice including earnings and liabilities. The Court will use the following factors: 1.) the nature and history of the business; 2.) its particular economic outlook and that of its industry generally; 3.) the book value of the stock and the financial condition of the business; 4.) the company’s earning capacity; 5.) its dividend paying capacity; 6.) its goodwill and other intangible assets; 7.) other sales of the corporation’s stock; and 8.) the market price of stock of comparable corporations.

There are many methods of valuing good will and a particular practice. The most common is the capitalization of earnings approach, which is a weighted average of annual earnings received by the professional spouse in excess of reasonable compensation, reduced by the value of the return on tangible assets, and applied to a capitalization rate. The Court will be mindful of abnormally high and low years of earnings. The valuation will also take into account marketability, or lack thereof, of the professional business in question.

LEARNING POINT: There are many methods of valuating a practice which you and your spouse have built while you married. The practice will be part of the equitable distribution of the marital estate. It is important to start the valuation process as soon as possible, so hire an attorney to protect your interests as soon as possible.

Can My Spouse Spend Our Assets Pending the Divorce?

divorce assets and martial propertyYou have decided to get divorced.  You wisely hired an attorney and your fear is that pending the divorce your spouse will spend down the assets and/or get rid of marital property.  While the commencement of a matrimonial action serves to terminate the acquisition of marital property, it might be months or even years before the property is distributed.  Thankfully, Domestic Relations Law (“DRL”) §236 has contemplated this very real concern and has a remedy.

DRL §236 provides for “automatic orders.”  What does this mean?  It is an order restraining parties from dissipating marital assets pending the divorce.  By rule, automatic orders are filed with the summons with notice or summons and complaint.  The order goes into effect, from the plaintiff’s perspective, upon filing of the summons or the summons and complaint.   From the defendant’s perspective, the automatic orders take effect upon service.

What’s in the automatic orders? There are five statutory restraints: (1) neither party may sell, transfer encumber or dispose of any property without the written consent of the other party except in the usual course of business or to pay for the customary and usual household expenses; (2) neither party can transfer, encumber assign, withdraw or dispose of stocks, or other assets in an IRA or other pension plan without the written consent of the other party; (3) neither party may incur unreasonable  debts unless in the normal course of business or for household expenses; (4) neither party may remove the adverse party or any children from existing medical coverage; (5) neither party may change the beneficiaries of any existing life insurance policies and must keep all policies in effect pending the outcome of the divorce.

Essentially, these orders are in place so that neither spouse can spend assets without prior consent of the other party.  Further, assets can only be used in the normal course of business.  The “normal course of business” whether it is an actual business expense, or running a house hold, isn’t actually defined.  A court will need to take into account life styles, the asset used, the purpose and whether, considering all relevant factors, the expenditure was a violation of the order.

LEARNING POINT:  Once a divorce action is filed, automatic orders, which are filed contemporaneously with the action, will prevent either party from either wasting marital assets or incurring significant debt.  If you are in the middle of a divorce and you have not retained counsel, seek out an attorney immediately! They can advise how you can use the marital assets pending the divorce.

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Pendente Lite Motion

pendente lite motion divorce lawA common question that arises when people come in for their initial consultation is: how they are going to survive the process!? Typically, a spouse walks in and has decided to get divorced.  Their first concern is that they have not been working and are one hundred percent reliant on their spouse.  As I’ve written in past blogs, the law is gender neutral when it comes to divorce.  There are only two types of people in a divorce, the “monied” spouse and the “non monied” spouse.  As you can guess, it’s the non monied spouse that walks in with the concern that they will not be able to survive if they file for divorce.  That is when we explain the Pendente Lite motion.  Pendente Lite is Latin for “pending the litigation”.  It is a motion that you can make where you, as the non monied spouse, requests that the monied spouse pay for the following: (1) temporary maintenance; (2) temporary child support; (3) your counsel fees; and (4) exclusive use of the marital property.  There are many other things that you can ask in the Pendente Lite motion.  This blog will focus on the request for the exclusive use of the marital property.

Courts are statutorily empowered in a matrimonial action to award temporary exclusive possession of the marital premises to one of the parties. (Domestic Relations Law §234).  Generally, exclusive occupancy of the marital residence should not be awarded to a party prior to trial without a hearing unless there is sufficient evidence to show an award is necessary to protect the safety of persons or property.  If a spouse has voluntarily established an alternative residence, the existence of an acrimonious relationship between the parties and the potential turmoil which might result from a spouses return may lead to the Court to grant a petition for exclusive use of the marital residence.  The question becomes how one defines the key terms of “necessary and safety?”  The Courts have not given much guidance however, the standard for granting exclusive possession is not so inflexible as to exclude the consideration of different circumstances warranting judicial intervention.

divorce attorney pendent lite motionWhat type of evidence would be persuasive to Court?  The following is a non-exhaustive list which would carry considerable weight with the Court: (1) a police report showing complaints by one spouse about the other; (2) the existence of an order of protection/non harass order; (3) medical evidence of abuse; (4) corroborative third-party affidavits of harassment.  Typically, a hearing is necessary when there exists contradictory affidavits.  When both spouses remain in the same household, it is difficult to show that exclusive possession should be granted to one spouse.  When addressing safety of a spouse, the mental wellbeing of a spouse can be as significant as the physical wellbeing of the moving spouse.  Thus, what typically happens is that one spouse moves for exclusive possession of the marital residence and the other spouse argues that this remedy is unnecessary because he or she is not doing whatever the moving spouse is alleging.

Start keeping a journal. When going through a divorce, you will want to be able to communicate to your attorney and eventually the Courts of all the incidents you believe substantiate your claim to the marital residence pending the divorce.  If you have been abused, file a police report.  Seek medical treatment.  If the abuse is mental, file for a Non Harass Order from the Family Court.  The goal is to amass evidence which can be sued in the motion to help substantiate your need for judicial intervention.

If a Court does grant exclusive possession of the marital residence, a common argument made by the spouse who now must move out of the martial residence is that he or she may not be able to afford two households.  The Courts uniformly hold the same way on this response: the appropriate remedy to resolve an apparent inequity with the Court’s pendente lite award is a speedy trial.

LEARNING POINT: Once you decided to file for divorce, immediately seek the guidance of an attorney.   Your attorney will be able to advise whether you have a legitimate claim to the exclusive possession of the marital residence and whether the pendite lite motion is something you should file.

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