Welcome to the Life Unlimited Podcast with Larry Heller. You deserve complete financial advice so you can confidently live your life your way for life. Now let’s get into this week’s podcast episode.
Aric: Hello and welcome to Life Unlimited with Larry Heller from Heller Wealth Management. I’m Larry’s producer Aric, and I’m here to learn along with you, the audience.
Larry, how are you?
Larry: I’m doing terrific, Aric. How are you today?
Aric: I’m doing fine. You know, you and I have been doing this for a very long time, and there’s always something that can trip us up a little bit. Derrick has been sitting there so patiently is what we’re figuring out, audio issues and video issues, and now we’re getting into the podcast and this is your guest.
You’ve brought on a fantastic guest. Can I introduce him to the audience?
Aric: All right. This is Derrick a Rubin, Esquire. He is a partner at Wisselman. Harounian and Associates PC and has been with the firm since 1997. He has been recognized by Newsday as an expert in matrimonial law and has been named a New York Metro Super lawyer for seven consecutive years.
In addition to matrimonial law, he has extensive experience in residential and commercial real estate, estate planning, civil litigation, and criminal and business law. That is a huge a list of accomplishments.What are you gonna focus on today?
Larry: Well, today we’re gonna focus on the family, Lauren. It’s specifically qualified domestic relation orders better known as QDROS.
Aric: QDROS. Okay. I’m ready to learn.
Larry: Derrick, thank you for joining us today. Thank you so much for having me here. So we’re gonna talk about a little bit of a technical topic today when it comes to divorce.
Um, like I just mentioned, we’re gonna talk about QDROS, but before we kind of dig into QDROS, why don’t we take a step back and talk about I think you mentioned to me that there are really five areas or steps when you’re going through a divorce and why you let our audience know those five areas.
Derrick: Absolutely. If you have five major. Areas and a New York divorce. Three deal with children. I’ll tell you all five. First, there is custody. Then there’s visitation, there’s child support, maintenance, and then equitable distribution. And I’ll explain each one very briefly. Custody’s broken down into legal custody and physical custody.
Legal custody’s decision making, deciding what sport a child’s going to play, what religion they’re going to raise, where are they’re going to go to college. Those are all legal custody decisions and the parents fight quite a bit on that issue. Second one is visitation, which is parenting time when you can see your child, whether it’s going to be a, a normal schedule or a hybrid.
Normal schedules would be, uh, alternate weekend, 13 major holidays you share, uh, alternate in the spring, winter and school break, and four weeks during the summer and mother and Father’s day and their birthdays. Then you get to child support in New York. Child support is governed by the Child Support Standards Act, which basically is 17% of someone’s income for one child, 25% for 2, 29%, for 3, 31% and 35% as it goes up.
It doesn’t matter. Uh, if I’ve had a case where we’ve had the father of two different children, it would not be 25% for the two, it would be 17% because there were two different mothers. Actually. You had one client who had five children, and he was paying more child support than he actually had income.
Okay? Then you’ve got maintenance, which is a, a fancy word for alimony. Uh, it’s money to live by. History sometimes dictates the future, however it was during the marriage, the court would want that to continue until there is a divorce. And then the final issue is equitable distribution, which is the splitting of marital assets and marital liabilities.
And what is a marital asset? That is an asset acquired after the parties got married until the date the divorce action is commenced. The only items that are excluded are gifts or inheritance.
Larry: Great. So that, that’s a, a nice overview to the different steps of the divorce. We could have podcasts on each one of those areas.
So today we’re actually gonna focus on really a subset of the equitable distribution step that you mentioned there and how that relates to splitting up, Um, retirement assets qualified and qualified assets. Cause a lot of lay people think when you have a divorce and you have an agreement that all you have to do is move money back and forth, and it gets, and, and it could be resolved, but you can’t do that for reasons of taxation and legals such as, um, erisa, uh, acts as well.
So how do we, how does somebody go about splitting equitable distribution and equit doesn’t have to mean 50/50, but equitable distribution of a retirement account.
Derrick: Okay? A retirement account can take many different forms. It could be a pension, it could be a 401, a 403, a 457. It could be an IRA. It could be if it’s federal, a thrift savings plan.
There’s all different retirement accounts, whether it’s funded by the individual or by the employer, or sometimes both in order that that retirement account is a marital asset, but in order to determine what is the marital. Marital component, you first need to decipher what the contributions were made.
For example, if the, say it’s an ira, the parties got married in 2010, but the person had the IRA back in 2005. They had it with Larry. They made lots of money and when they got married, that money’s up to the date of marriage is separate. Property does not get. But the monies that are from the date of marriage to the date of commencement is marital properties.
And then, uh, any money’s contributions by an employer employee after the date, the divorce is commences, once again separate property, so you have to analyze the statements from the very beginning till present to figure out what those contributions are, figure out what the marital asset is, and then figure it out if there’s even growth on that maritalAsset. If you’re with Larry, you’ve made lots of money in the market. Sometimes other people go down, but Larry makes money and you have to check out those investment gains. And those investment gains can also be shared equally with the parties. Now, when you get to, to actually split those accounts, you need something called a domestic relations order or a qualified domestic relations order.
What that means is after the divorce is Sony, the judge on divorce has been issued. The court then has to issue a new document called the the Dro or the QDRO to split up that retirement benefit retirement account without tax consequences. So if there’s a hundred thousand dollars with Larry’s, uh, firm and the ex-spouse is now supposed to get 50,000, the monies could be rolled over into a new IRA without tax consequences, and the person would then hold the IRA there.
Larry: Right? So that, that, the reason for it is if you just. Took money out of a 401k plan and moved it to the spouse who’s entitled to whatever amount after the calculation is being made. That money would be, that would be a taxable event, and we don’t want to have it a taxable plan. So the only way that legally you’re allowed to do this is by getting this domestic relation, correct?
Derrick: That’s correct. Order. Yep. Now it’s a very technical document. The trouble is when parties. Been fighting through a divorce. They’re fighting over custody of the children. They’re fighting over who gets the house. They’re fighting over monies. They’re fighting over summer vacation. They finally get down to,
Larry: you mean most of all the divorces they’re fighting. They’re not equally without fighting .
Derrick: A lot of people don’t like each other, fortunately. The rule of thumb was used to be 40% of all first marriages and a divorce, and 60% of the second. The reason the second number is higher because the second marriage of people had already obtained a prenuptial agreement, which they know limits their financial liabilities in a divorce or financial exposure and, and doesn’t let the court or the judge decide.
Larry: So let’s go back to the, to the QDRO. So, uh, now, so what is the actual process? How does it work? So the first thing you said. , there’s gotta be a calculation Who’s doing that calculation? And how does that how do you proceed?
Derrick: Let’s start with a pension. It’s a simple item in New York State with that pension.
If it was acquired all during the marriage and the monies were there, it can be split up pursuant to something called Majauskas Formula. Uhk were a couple in 1984 in Albany who were getting divorced, had a pension, and the court didn’t know how to split up the account and they figured out this formula.
And this formula has been used ever since. And, uh, the parties who name were at sks, they were ever known in every single separation agreement now has the Majauskas formula.
Larry: So when you, when you mean a pension, you mean money going to the person when they retired in a fixed amount.
Derrick: That’s correct. Let’s say the pen, the pension pays a thousand dollars a month when the person retires.
If the pension was all acquired during the marriage, the spouse would get 50% of that payment. So she would get 500 and the husband would get 500. Gotcha. Though, if. There, there are certain options, and this is where it becomes complicated. You could choose for your retirement account something called second to die, which means that once the person with the pension dies, the pension payments could continue until the alternate payee.
The ex-wife were ex-spouse receives payments until her death. In order for that to happen, it can’t be a thousand dollars a month payment cause the pension plan has to have enough money for the wife, uh, until she passes away. So the payments might be reduced down to $800 a month, of which the wife’s entitled to five 400 and the husband will be entitled to 400.
Most husbands don’t want to have their payments reduced. They don’t want the payments continuing after their death of their wife because they much rather get much more money upfront on their pension payments, uh, and vice versa. And courts most times do default to the second to die for on the pension payments regarding the payments of money.
Larry: Okay, so that’s pension. Now what about a 401k account?
Derrick: 401k. Uh, once again, we figure out what the marital value was when they got married, what the value was when they, the divorce started. If there’s any contributions, those will all be separate. Then you need to find out cause each in order to split, let me go backwards here.
The domestic relations order is based upon the language and the separation agreement, A separation agreement or a stipulation settlement or property settlement agreement, or all the same thing. It’s a 30 to 80 page document. It’s your Bible for getting divorced. It covers those major issues, custody, visitation, child support, maintenance, and equit distribution.
But it also covers retirement accounts. And the, if the language in the separation agreement is not specific as to the plan name, account number, and the way the count gets split, then when the QDRO is Based upon that, the QDRO will be imperfect and either the plan administrator for the QDRO will not accept it, or the court will not accept it, that the QDRO doesn’t match the separation agreement that which might occur two years after the judge and divorce is signed.
So you wanna get the separation agreement right the first time dealing with the domestic relationship.
Larry: Right? So this, so the separation agreement is done. And they both parties agree. The attorneys, agreed on an amount, but now there’s gotta be another step. Yes. That’s taken before this can happen.
What is that step?
Derrick: As to the specific language that they need in order to split the account.
Some plans allow for gains and losses. Other plans allow for a split at the, uh, The date of the segregation of the account. Some plan require a specific dollar amount on a specific date. Most plants don’t like to do math. They just want to get the plan, the sep, the document before them. Now, a domestic relations order, or QDRO, or any of those type of documents is sent to the plan administrator after it has been drafted in order for the plan.
Preapprove it a judgment or divorce, a court will not sign it, uh, a a a QDRO unless it’s been pre-approved by the plan.
Larry: So let’s just, let’s take a step back just to see if I can make this little, a little bit, um, simplify. So the agreement is done. You have the separation agreement done, and within that separation agreement, you’ve agreed on how to split the retirement accounts.
So now, You’re hiring a outside company, a pension consulting company who is then going to contact the plan administrator. That plan administrator is actually the plan administration for the. The, the husband or the wife’s retirement account. So they’ve gotta contact them to make sure that the way that’s being written up in this document is proper. Correct?
Derrick: That’s correct. Uh, so it’s so important. In the separation agreement to get the language correct the first time as to how this account will be split. Unfortunately, many attorneys or the parties by the time they’ve gotten to this last section, after fighting so much on everything, they just want the divorce signed.
Normally, parties run out of money by this time, or they owe their attorneys lots of money and they say just. Get it signed. Let me finish. I’m done with this and fortunately, sometimes the plan doesn’t have that specific language in there, how to correctly split the account.
Larry: And then there’s one more step that order now has to go to the court, and the court now has to give it their stamp of approval. Once you actually, two more steps, once you get the stamp of approval, then you have to go back to the Plan administration company to have them actually physically divide it or roll it over.
Derrick: That’s correct, the QDRO is prepared, uh, with both attorneys input. It’s reviewed, made sure it’s accurate. Sent to the plan for preapproval if approved.
Then the domestic relations order, the proposed order, it’s not signed in, is sent to the court along with the uncontested divorce papers. Once the divorce is signed, then the court will get around to signing the Dro. But sometimes, uh, Problems that arise. As I said before, the language might not be rec. Uh, correct or even worse, the person where their money was placed was no, no longer holds it.
For example, the money might have been with Prudential, and the Prudential then switched it over to Fidelity. So now you have a QDRO telling Prudential to turn over $200,000 to the client Potential says, I don’t have the money. Therefore you now have to go back, start again with the domestic relations order, find out what the new plans language is, how to split it, send the order for preapproval, get it back, send it to court, and hopefully the court will sign it.
Larry: Right. And the one of the issues that we see is, That someone getting divorced doesn’t understand why their attorneys can’t just do this for them. That it has to go through a third party consultant. And like you mentioned, this is already at the end, the agreement is done. It could be years down the road after you finally get to a settlement.
Um, but this could also be a big asset. So now the, one of the two parties in, in that are getting divorced or both need to follow up with the attorneys who need to follow up with the pension consultants to make sure that this gets done. And sometimes we, we, we’ve seen that it just drags on longer than it should.
Derrick: Also the problem is with the courts. The courts are so far behind, they’re overworked and understaffed, and it could sometimes take six to nine months to a year after the judgment is divorced, is signed for the court then to sign the domestic relations order.
Larry: Right. So for anyone out there that’s going through a divorce or may go through a divorce, it’s, it, it, it’s important to really know that this last step takes a little bit longer and to be diligent and working with your attorneys to make sure that this gets followed up.
So it could be done on a timely basis. Absolutely. Any last, um, uh, items you’d like to tell the audience today Derrick?
Derrick: Just stay on top of your attorney. Unfortunately, some, uh, parties, when they get divorced, they just run outta money.
They don’t do the QDRO, and then they wait to do it. And then, uh, then. Some people come to me 3, 4, 7, 10 years later to seek the QDRO at that time, the person who, let’s say this the wife’s going against the husband. Husband’s now retired. He’s already in payout status.
If you sent the QDRO in now, you will not get the retroactive payments for the 10 years of monies that you’ve missed. So you must be diligent, get that QDRO signed, and send to the plan administrator and get your funds.
Larry: So this has been very en enlightening. Thank you for, uh, for being our guest today, and thank you so much for having me.
Right. And why don’t you tell the audience where they could reach you if they, uh, if they, if they’d like to speak to you further.
Derrick: Our firm is located 3 46 Westbury Avenue Coral Place. And if you need to call, the phone number is (516) 773-8300. Great. Thank you Derrick, so much for being our guest today. Thank you so much.
Aric: It was wonderful. This has been fantastic, Derrick. Thank you so much. And here’s my observation. I’ve never been through a divorce. I’ve had friends that have gone through it. Um, Larry and I’ve talked about it many times on this podcast, and it has gotta be just an incredibly emotional time. And to hear you talk about it, to hear the things that you do, and the, the, basically the.
Kinda the calm, the storm you provide for your clients is fantastic. So thank you. I’ll just echo what Larry said. Thank you so much for being on the show. Larry, another fantastic podcast. You’re bringing great information to the audience. If folks wanna reach out to you specifically to talk about anything, not just divorce or not just, you know, their financial plans.
How do they get a hold of you?
Larry: Sure. The easiest way to go, right on the, our website Heller wealth management.com, and there’s a button there. They can click on a button to schedule a 20 minute consultation with myself and one of the other financial planners. Or feel free to call the office at (631) 248-3600.
Aric: Fantastic. Again, thank you both and our last thank you of course always goes to your listening audience. Thank you so much for tuning in and listening to the Life Unlimited podcast with Larry Heller. If you have not subscribed to the podcast yet, please click the subscribe now button below. This way when Larry comes out with a new podcast, it’ll show up directly on your listening device.
And if you’re watching on YouTube, we’d appreciate a like and to follow there as well. We humbly ask that you share this podcast write and leave a review cuz this actually does help others find the. Again, thank you so much for listening today. For everyone at Heller Wealth Management, this is Aric Johnson reminding you to your best day every day, and we’ll see you next time.