QDRO Corner: The Importance of Addressing Earnings, Gains, and Losses

Earnings, gains, and losses is the phrase used to describe the investment experience of the funds within a defined contribution account (401k, 403b, 457, TSP, etc.). In dividing a defined contribution account, the parties have the option of including earnings, gains, and losses on the amount to be transferred, or not. One must select a valuation date from which to apply the earnings gains and losses.

Division of the earnings, gains, and losses protects against surprises in the market.

Let’s say Spouse A is to receive 50% of Spouse B’s old 401k as of December 31, 2019, with earnings, gains, and losses applied thereon (Spouse B and the employer are no longer contributing to the 401k). At the time, $100,000 was in the account. Due to market fluctuations, at the time the account was to be divided, only $80,000 was in the account. Therefore, each party received $40,000 upon division.

Assume the same facts as above, but this time with no earnings, gains, and losses applied. Spouse A will receive $50,000 and Spouse B will retain $30,000.

Continue to assume the same facts, but this time due to market fluctuations only $40,000 remained in the account at the time it was to be divided. Without earnings, gains, and losses Spouse A would receive all $40,000 (even though Spouse A should have received $50,000), Spouse B would be left with $0, and the plan would consider its obligation satisfied.

Earnings, gains, and losses in an account can be quite substantial in certain circumstances. If you are uncertain how to discuss this issue with your client give us a call.

QDRO Corner: A FERS Annuity Doesn't Have to Revert to the Employee

When parties divorce and the FERS annuity is divided pursuant to a COAP and then the former spouse dies, the default is for the former spouse’s share to revert back to the employee.

I’m often asked whether the former spouse’s share of the FERS monthly annuity can be transferred to someone else in this scenario, rather than having the share revert back to the employee.

OPM (the administrator of the FERS plan) will only transfer the former spouse’s share to a specifically named third party as a part of the COAP if that third party is the child of both parties. If the former spouse’s share is to be paid to any other third party, the COAP must designate either a central location such as a specific bank account, or the former spouse’s estate. If, however, the estate is elected, then keep in mind that the funds will be taxed for going through probate (according to each state’s laws) and then the estate must remain open until the death of the employee, which will cause delay and maybe an administrative headache. Additionally, note that if the former spouse was to receive a survivor annuity, the survivor annuity does not transfer to anyone. Only the former spouse’s share of the monthly annuity during the life of the employee can continue to be paid beyond the death of the former spouse.

Similarly, I’ve also been asked the opposite question recently: the parties designate that the former spouse’s share goes to the parties’ child upon the death of the former spouse if predeceasing the employee. The former spouse dies, and the parties’ adult child is now receiving the former spouse’s share, whereas the employee could really use those funds. As the former spouse is now unable to sign a new COAP, the only way for the employee to recoup those funds is to ask the adult child for them, and hope their child voluntarily pays it over, post-tax.

Changes to Maryland Child Support Rules

Shared Physical Custody – SB 579

Last month, the Maryland legislature passed a law that changes the way child support is calculated in certain shared custody situations. Under the child support guidelines, child support is calculated depending on the number of overnights the child spends with the non-custodial parent. Currently, when a child spends more than 128 nights, or 35 percent of the year, with the non-custodial parent, a shared physical custody calculation is used. If the child spends fewer than 128 overnights with the non-custodial parent, then a sole physical custody calculation is used.

But what about situations where the child spends 127 overnights with the non-custodial parent? This is called the “cliff” model because of the drastic difference in child support calculation between 127 and 128 overnights. The new legislation lowers the “cliff” so that the shared physical custody guidelines are more readily applied and is now accompanied by a “slope” to ease into the shared physical custody guideline calculation.

First, the legislation alters the definition of shared physical custody, so it now applies when a non-custodial parent has the child for at least 92 overnights, or 25 percent of the year. Second, when the child spends between 92 and 109 overnights with the non-custodial parent, or 25 to 30 percent of the year, a shared physical custody adjustment calculation will be used to determine child support. This adjustment acts like a slope to ease child support calculations into shared physical custody. The sole physical custody calculation will be used in cases where the child stays with the non-custodial parent under 25 percent of the time and the shared physical custody calculation will be used where the child stays with the non-custodial parent more than 30 percent of the time.

So, what does this mean for your upcoming child support case? Well, as the child spends more time with the non-custodial parent, between 92 and 109 overnights per year, a new, gradual calculation applies until the overnight amount reaches 110 overnights. At that point, the shared physical custody calculation is applied. For more information on how child support is calculated in Maryland, please check out our previous blog.

This legislation goes into effect on October 1, 2020. For existing child support orders, the passage of this bill does not mean that your child support obligation will change.

Child Support – SB 847 

Last month, the Maryland legislature also passed a law that changes child support obligations in certain circumstances, unrelated to timesharing. Effective on October 1, 2021, the child support guidelines will provide judges with more discretion to ensure that after child support is paid, the payor parent still has sufficient income to provide for him or herself and will require judges to make specific findings in cases where there are allegations of voluntary impoverishment.

First, this law gives the court authority to determine whether applying child support guidelines would be unjust or inappropriate by taking into consideration whether the support obligation would leave the payor below 110 percent of the 2019 federal poverty level. In cases where this is true, the court can decline to apply the child support guidelines.  If the court declines to apply the child support guidelines, the court must make specific findings that defend the support determination, including how it deviates from the guidelines and why it serves the best interest of the child.

Second, the law indicates circumstances where the court has the authority to decline to establish a child support order. These circumstances are where the payor parent is unemployed, is incarcerated, is permanently disabled, has no financial resources to pay child support, is institutionalized in a psychiatric care facility, or is unable to obtain or maintain employment.  

Further, the law establishes that a material change of circumstances exists to modify a current child support order if any of the circumstances outlined above (unemployment, permanent disability, etc.) apply to the payor parent. A “material change of circumstances” is the standard that must be met in order for any modification of child support to be considered in Maryland.

Lastly, where there are allegations that the payor parent is voluntarily impoverished to avoid paying child support, the law requires the court determine the validity of these allegations based on the totality of the circumstances. If the Court determines that there is voluntary impoverishment, then the Court must decide if potential income should be imputed to the payor parent and if so, how much. The Court makes this decision by considering several factors, such as the parent’s age, education, special skills, employment history, etc.… However, if the parent is unable to work due to a physical or mental disability, or is caring for both parties’ young child (under two years of age), then the court may not make a potential income determination for the purposes of child support.

The passage of this bill will not directly affect a child support order that is in effect prior to October 1, 2021. And, the adoption of new legislation does not constitute a basis for a modification of child support.

Child Custody and Relocation: What You Should Know Before Packing Your Bags

Are you thinking about moving, but worried how this might affect your custody agreement? 

For many parents, relocating to a new place presents new and exciting opportunities. Whether it would allow you to seek a better job, or the move would put you closer to extended family, your reasons for moving may be completely valid. However, when this move would create a conflict with your custody arrangement, there are important factors you must first consider. 

1. First things first – are you planning to move across the street or across the country? There is a big difference between moving somewhere in driving range versus somewhere that requires a plane ride to get there. This is because regardless of whether your custody arrangement was established through a separation agreement or by a custody order from the court, you must follow its terms. 

2. Modifying your agreement – But what happens if you want to move to a different state, or maybe even to a different country? When relocation would absolutely make your current agreement or order impossible to follow, you will have to have the arrangement modified. While this can be done through a consent agreement with the other parent, you may have to seek a court order regarding custody. 

3. In analyzing a relocation request, a court will consider many things, including whether the relocation establishes a material change in circumstances to trigger modification of custody, and whether relocation is in the best interest of the child. Courts use this high standard as a way to avoid unnecessary disruption for the child. As part of the best interest analysis, courts will generally consider the following: 

   • What are the reasons for the move? Are you moving to pursue an advanced degree or for employment reasons?

     • Do you have a plan for where you wish to move? Have you looked into neighborhoods, or schools for your child? 

     • If you are the relocating parent, are you able to meet your child’s needs on a day to day basis? 

     • What is your relationship with your child? And how does that compare to their relationship with the other parent?

     • How old is your child? 

     • Will relocation enhance the general quality of life for both you and your child? 

It is important to note however that while a court may find that relocating your child is not in their best interest, they cannot restrict you from moving alone. Rather, the court can amend the custody order so that your child remains in-state with the non-relocating parent.  If you have questions, we can help. Call our office at 240-396-4373.

COVID and the Modification of Child Support

Lost Your Job? Modifying Child Support May Help to Lessen the Blow

 As if dealing with the stress of a global pandemic wasn’t enough, people are now forced to face the unfortunate financial consequences of COVID-19. For many this means unemployment (including furlough, permanent lays offs, or underemployment) and if you are also a parent paying child support, this could mean significant challenges in meeting your monthly obligation. That being said, a modification in your child support order might be your next step. Here is what you should know. 

1)    A modification of child support may be appropriate if circumstances have changed substantially since the last order was entered.  Losing a job is a common reason for a reduction in child support, but other reasons could include a reduction in hours or pay rate. Given the uncertainty surrounding when this virus will end, courts may also consider factors which they normally would not. 

2)    A modification of child support is only valid through a court order or formal agreement.  For these reasons, you should never unilaterally lower or stop paying your obligations. 

3)    Child support payments can be deducted automatically from your unemployment benefits. If you cannot find another job, you may want to consider filing for unemployment as a way to ensure you do not default on your payments. 

 4)    If you cannot pay your child support, you should either immediately consult with an attorney and/or immediately file a pro se motion to modify. If you do not, a court can find that you are in arrears of payment and accordingly order you to pay anything owed pursuant to the last order.   Even with court closures, you can still file a motion which will toll the accrual of your arrears.

If you have questions,, we are open and available to help!

Retirement Implications of the CARES Act

On March 27, 2020 the CARES Act was signed into law. The major headlines of the law are the small business loans, checks to income-qualifying individuals, and student loan payment implications. However, the headlines are omitting another major section of the CARES Act – the section that loosens access to funds in retirement plans for qualifying individuals, so that funds in retirement plans can be used to help pay for expenses during this time. Note, the loosened restrictions for access to retirement funds is for 2020 only.

Who is Eligible to Take Advantage of the Loosened Restrictions?

Before getting into the details of how the access to funds in retirement plans have been expanded, who is eligible to take advantage of this temporary change? A ‘qualifying individual’ is someone who is, or whose spouse or dependent is, diagnosed with COVID-19, or who experiences financial hardships due to furlough, quarantine, layoff, hours reduction, inability to work due to lack of childcare or business closing, or any other factors as determined by the Secretary of the Treasury as the situation changes. 

Ok, so a person is eligible, how do they use take advantage of being eligible? Retirement plan administrators/sponsors are not required to verify a plan participant’s claim of eligibility – the plan administrator/sponsor can rely on the plan participant’s certification of eligibility. 

What Exactly Could People Be Eligible For? 

1. Higher Loan Limit. The loan limit for all qualified plans is now $100,000 or 100% of the participant’s vested balance, whichever is lower. This is increased from $50,000 or 50% of the participant’s vested balance. This total loan balance is to include any loans currently outstanding by a plan participant. Payments otherwise due between March 27, 2020 through December 31, 2020 will be delayed for one year, and no interest shall accrue during the delay period. 

2. Tax-Free* and Penalty-Free Coronavirus-related Distribution. Individuals can take a Coronavirus-related distribution of up to $100,000 in 2020. The distribution will not be subject to the 10% early withdrawal fee. The distribution will be included in the recipient’s taxable income across three years, unless the recipient prefers to have it all taxed in a single year. *However, if the recipient repays the distribution or any amount thereof, within three years of receiving the distribution the amount repaid will be treated as a rollover to an eligible retirement account and will not be taxed. As a practical matter, for people repaying the distribution in a year other than the year in which it is received (2020), the person will have to amend the tax returns for that year to change the tax treatment of the distribution.

3. No Required Minimum Distributions in 2020. Persons with a certain 457(b), or an IRA, 403(a), or a 403(b) from which they are required to take a minimum distribution each year are not required to take such a distribution this year. The purpose of this is to help people preserve their investments and leave their funds in the retirement account if they do not need to take the distribution. There is no guidance for persons who have already taken their required minimum distributions before this law was passed, so as of now, required minimum distributions that have already been taken cannot be re-deposited or otherwise ‘undone.’ 

If a party to a divorce is adversely impacted by COVID-19, or is otherwise in need of funds during this crisis, these options may be worth exploring. Consult with a financial planner or tax advisor before making any important financial decisions like these!

Divorce and Custody Agreements: How to Navigate the Coronavirus Quarantine

            How do you successfully co-parent when you are also forced to quarantine? The spread of COVID-19 has divorced parents asking a lot of questions about how to stay safe and practice “social distancing” while also following their custody agreements. Here are some good tips.     

Stick to the agreement

While this may not be easy, try to follow the terms of the agreement as much as possible. These are stressful and changing times for everyone, which is why maintaining some form of stability can benefit both you and your children.  

Prepare for flexibility 

 With schools closed and activities cancelled, there may be certain aspects to your agreement that actually require change. That being said, both parents should be prepared to be flexible. Communication is essential. 

For example, if pick-up and drop-off typically takes place at your child’s school, you may want to establish an alternative location or agree to some other form of exchange. Regardless, remember that this must be a mutually agreed upon decision that works for all parties involved. 

Be safe

Given the contagious nature of the virus, it is important to avoid social contact if someone in your family presents with symptoms. This may cause disruption to your agreement, however, ensuring that the rest of your family is safe should remain a top priority. Fortunately, there are no shortage of virtual hangout applications that allow you to remain in isolation while also getting facetime in with your kids! 

Don’t forget the priorities 

Remember, it should always be about what is in the best interest of your children. 

What is a Power of Attorney? What is an Advanced Healthcare Directive?

A Power of Attorney and Advanced Healthcare Directive are legal forms that give authority to another person to act on your behalf in certain circumstances. 

Power of Attorney

A Power of Attorney deals with your assets and debts, to include your home, cash accounts, retirement interests, car, personal property, and insurance. The Power of Attorney lets you delegate authority to make decisions regarding these assets to another person, either in all circumstances or in limited circumstances. For example, you might be closing on a house, but have pre-planned and paid for travel. You could delegate your authority to sign the closing documents, sign for the mortgage, transfer funds from your bank account, etc. so that closing on the home can continue while you are away. The Power of Attorney could be revoked or could automatically terminate once closing was complete. 

Alternatively, you could use a Power of Attorney as a part of your long-term estate planning. A Power of Attorney form can become effectively immediately and not terminate, even if you become mentally incapacitated in the future. In this circumstance, the Power of Attorney is used to make sure you have someone of sound mind with authority to access your assets to make sure your bills continue to be paid, and that you have cash on hand to be able to purchase life necessities. 

The Power of Attorney also allows you to state who you wish shall serve as the guardian of your person or property, if that becomes necessary. 

 Advanced Healthcare Directive

 The Advanced Healthcare Directive is a form of long-term estate planning, as well as an unforeseen emergency tool. Anyone could encounter an unforeseen emergency, leaving them in the hospital without the ability to confer with doctors for their care or are simply aging and looking to round out their estate planning. 

 The Advanced Healthcare Directive is a set of instructions to another person with respect to the type of care you would like to receive in certain circumstances. In the event that you have a minor child, the Advanced Healthcare Directive also includes an option for you to designate who you would like to take care of the minor child in the event the parents are unable to do so. 

 If you do not have these documents currently in place, call 240-396-4373 to schedule your appointment.

Using Private Investigators in Your Legal Battles: Common Pitfalls and Best Practices

Are you curious about hiring a private investigator in your divorce case? 

Law firms often turn to the use of private investigators to find out additional information about opposing parties. While the practice is growing in trend, there are some common pitfalls you need to be sure to avoid. 

In Washington D.C., there are two rules of professional conduct that are relevant to attorneys to using private investigators in their cases. D.C. Rules of Professional Conduct 1.3 mandates that counsel should represent a client zealously and diligently. Rule 3.1 of the Code of Professional Conduct states that lawyers are required to inform themselves about the facts of their clients’ cases and determine that they can make good faith arguments in support of their clients’ positions. 

What are some common pitfalls when using private investigators? 

You should stay far away from lawyers and investigators who engage in pretexting. Pretexting is the practice of contacting witnesses either by phone, in-person, by e-mail, or through social media and misrepresenting your identity to get information. The temptation to engage in pretexting is high, as lawyers and investigators know that they are more likely to get people to talk to them if they conceal their true identity. While pretexting can be highly successful, it is a violation of DC Rules of Professional Conduct 4.1 and 8.4, as well as mail and wire fraud statutes, and the FTC Act. 

You should also be wary of investigators who engage in so-called, “dumpster diving.” While it may be tempting to think that anything put in a trash can is fair game, if the dumpster is located on private property (such as at an apartment complex), or if there are jurisdictional regulations prohibiting such acts, the lawyer or investigator can be liable for trespassing. 

So, what are the best practices? 

Any hired private investigator should be hired through legal counsel. An investigator’s work is generally going to be protected under work product doctrine if hired by counsel, otherwise, the investigator’s work will be open to discovery. An attorney can also set and document in writing clear rules and guidelines for the investigator’s conduct. 

Markham Law Firm has experience ethically using private investigators in family law litigation cases. To learn more about how Markham Law Firm can help you through your domestic dispute please call us at (240)-396-4373. Markham Law Firm is located in downtown Bethesda, MD.   

New Gender Designation Law

A new gender designation law is making its way into Maryland this October. House Bill 421 passed both the House and the Senate with a veto-proof majority and was enacted under Article II section 17(c) of the Maryland Constitution on May 25, 2019. The law will take effect on October 1, 2019.

Maryland residents who identify as non-binary will now have the option to designate their gender as X instead of the traditional M or F options through the Motor Vehicle Administration. Persons who identify as non-binary, unspecified, or “other” do not identify exclusively as male or female and often use they/them pronouns. The law allows applicants for licenses, state identification cards, and moped operator’s permits to indicate an “unspecified or other” gender with an X. Maryland joins California, Colorado, Maine, Minnesota, Oregon, and the District of Columbia in allowing designation for unspecified gender on licenses and state identification cards. 

To change gender designation on a driver’s license, the Motor Vehicle Administration requires the change to be done in person and requires the applicant to bring either a court order, federal/state-issued identification, or birth certificate showing the requested gender designation. An applicant may also bring an authorized letter obtained from MVA’s Driver Wellness and Safety Division. This new law, however, prohibits the Motor Vehicle Administration from requiring proof of the applicant’s sex or denying an application because the sex selected by the applicant does not match the sex indicated on another document associated with the applicant. 

Following suit, Montgomery County Public Schools (MCPS) recently announced that students will be able to designate X as the gender option on school records. MCPS Superintendent Jack Smith wrote a letter to Maryland State Superintendent of Schools Karen Salmon stating that the school system receives numerous requests from students and parents seeking to indicate their gender as non-binary or unspecified each year. Arlington Public Schools and DC Public Schools are also allowing for a third non-binary gender option on school records. 

While the Motor Vehicle Administration changes will go into effect October 1, 2019, the MCPS policy change will not be fully implemented until the summer of 2020. However, the school system plans to handle requests to change gender designation on school records on a case-by-case basis until then. To note, the new October law does not cover birth certificates issued by the Division of Vital Records, and as of now there is no option to change your gender on your birth certificate to X.

Markham Law Firm has experience representing parties with relation to name changes and motions to seal so that their documentation matches their identities. To learn more about how Markham Law Firm can help you through the name change or record sealing process please call us at (240)-396-4373. Markham Law Firm is located in downtown Bethesda, MD.