QDRO Corner: Cost of Survivor Benefits

Most pension plan survivor benefits come at a cost. The reason for this is because most pension plans determine the benefit amount assuming that the payment will be made only during the life of the retiree.  In order to extend payments for an additional life, the plan will decrease the monthly benefit to apply those funds toward the survivor benefit. To be clear, this cost is taken by the plan as a deduction each month from the monthly pension benefits.  

Things to consider regarding the cost of the survivor benefit.

1. The larger the survivor benefit, typically, the larger the cost. Some plans determine the cost actuarily while other plans have a set fee schedule.

2. How does the cost for the survivor benefit get paid? There are two ways that plans can take the cost from the parties, the first option is as a reduction to both or either party’s monthly benefit and the other is ‘off the top’ of the monthly benefit.

   1. Reduction to both or either party’s benefit. Under this scheme, the parties can determine whether one party pays the entire cost, or if they will share the cost equally. This scheme results in the plan taking the cost AFTER the monthly benefit is divided between the parties.

   2. Off the top. Under this scheme, the parties cannot allocate the cost of the survivor benefit to either party. The plan takes the cost of the survivor benefit BEFORE dividing the monthly payment between the parties. In essence, this results in the parties paying their proportional share of the survivor benefit. If the parties want to shift the cost, they’ll have to determine an equalizing payment to be made on a monthly basis between themselves, separate from the QDRO.   

Some plans provide a certain amount of survivor benefits without any cost, but will charge a very high cost for any survivor benefit amount above the free survivor benefit amount.

If you don’t know if there’s a cost, it’s best to reach out to the plan in advance of signing an agreement. You’ll be able to find out if there is a cost, what the cost is, and how the plan requires the cost be paid. Such information can help the parties determine whether the benefit is worth the cost, and can save the parties from negotiating for this after everything else is resolved.

If you have any QDRO questions, please reach out to Beatriz Giglioli at bgiglioli@markhamlegal.com

What we know about the high-profile Bill and Melinda Gates divorce

On May 3, 2021, in what may be Twitter’s most famous divorce tweet of all time, Melinda French Gates and Bill Gates announced that they are ending their marriage. Bill Gates is the fourth richest person in the world, with a net worth of approximately $124 billion. The Gates’ settlement of marital property could be the largest of all time. Understandably, the Gates desire to keep the details of their high-profile divorce private. One month into the Gates’ announcement, here is what we do know about this multi-billion-dollar divorce.

1. Each party will be represented by at least three law firms, including attorneys versed in Washington State family law. One of Melinda French Gates’ attorneys is celebrity divorce lawyer Robert Stephan Cohen.

2. Melinda French Gates could become the second richest woman in the world after the divorce is finalized. In fact, on the day the couple announced their separation, Bill transferred $2.4 billion dollars in securities to Melinda, officially making her a billionaire separate from her husband.

3. Melinda French Gates is not asking for alimony. Instead, she will likely receive billions of dollars in assets—similar to Mackenzie Bezos, who received a four percent stake in Amazon (worth $38 billion), when she divorced Amazon founder and the richest man in the world, Jeff Bezos.

4. The couple has no minor children. The youngest Gates child is 18, suggesting that the couple may have waited for her to reach legal adulthood before divorcing.

5. In 2017, Bill Gates announced that each his three children would inherit $10 million of his fortune, but there is speculation that Melinda French Gates is attempting to increase that amount in the couple’s settlement.

6. While there is speculation that the Gates had a prenup, their separation agreement will likely supersede the terms of any premarital agreement.

7. In addition to billions of dollars in Microsoft stock, the Gates’ divorce will divide the couple’s real estate, which is worth $170 million and includes their 66,000 square foot home outside of Seattle, Washington.

8. The Gates’ art collection is worth $124 million and includes works by artists from Leonardo da Vinci to Winslow Homer. The collection could also be divided in the divorce settlement.

9. Although the Gates announced their divorce in 2021, it is rumored that Melinda French Gates hired divorce lawyers in 2019 when news broke about her husband’s alleged friendship with convicted sex offender Jeffery Epstein.

10. While the Gates are divorcing, they will both continue to devote time to the Bill and Melinda Gates Foundation which aims to reduce disease, poverty and inequity worldwide.

Those are the highlights of what we know so far about Bill and Melinda Gates divorce. Dividing 27 years’ worth of monetary and non-monetary contributions to a marriage is no simple task.

If you are considering separation or you are involved in a divorce in Maryland or the District of Columbia, contact our team at Markham Law Firm at 240-396-4373. It is vital that you secure highly competent legal representation even if your assets do not include a da Vinci.

QDRO Corner: Oh, what’s in a name?

In order for a QDRO to be accepted by the plan, it must refer to the plan by its proper name. It’s a simple rule but is easily violated. Plan names may appear on the regular account statement, in an online portal account, in the employee handbook/benefits statement, and in correspondence between the employer/plan and the employee. However, some of these sources may refer to a plan by an old name, or a shortened version of the name. In addition, some plans may be known generally by the name of the umbrella plan, but there are subplans and the specific subplan name must be included in the QDRO.

One large plan in the Maryland/DC area that is quite particular about this is the Maryland State Retirement and Pension System. This is the plan in which public school teachers in Maryland participate. Based on when the teacher started working for the state and a few other criteria, the teacher could be a participant in the Teachers’ Retirement System or the Teachers’ Pension System. Getting this one-word difference wrong will result in the State rejecting the order.

The best way to avoid this simple error is to obtain a statement of the plan and compare the name listed there to the plan name listed in the Summary Plan Document (which can be obtained by calling the plan and asking for it). When drafting agreements or seeking a share of a retirement benefit in court, be sure to use the correct plan name for the best specificity. This will delay any ambiguity for the QDRO drafter.

Wait! Before you file your custody case, remember to consider if the Hague Convention on the Civil Aspects of International Child Abduction applies.

The Hague Convention on the Civil Aspects of International Child Abduction (the “Hague Convention”) governs custody jurisdiction between countries. It is an international treaty that has been ratified with the United States by nearly 80 countries. Most recently, Pakistan and Jamaica have ratified the Hague Convention with the United States.

All family law practitioners should consider whether or not the Hague Convention applies to an international family law case. It is an essential step in any case involving international children. If the left-behind parent submits to the local jurisdiction, Hague Convention claims may be impacted.

Let’s examine the following example. You have a family that lived together in Ecuador. The father moved to the United States. The mother and child continue to live in Ecuador. The mother agreed for the parties’ child to visit the father in the United States for three months during the summer. Three months have passed, but the father has not returned the child to Ecuador. Three more months have passed and the father files for custody in state court.

 In the above example, if the mother files an answer to the father’s custody case in state court, she has submitted to the state court’s jurisdiction. Before filing an answer, she should consider her alternative legal options, including the Hague Convention. In this frequently occurring scenario, it is essential that both parties are advised on the possibility of a Hague Convention case and the consequences for bringing the claim or not bringing the claim.

So how do you know when you should consider the Hague Convention? You should ask the following questions:

1.    Are there two countries involved?

2.    Have the two countries ratified the Hague Convention with the other?

3.    Where is the child’s habitual residence?

Practice Note: In 2020, the Supreme Court of the United States established the habitual residence test that applies in the Unites States.

4.    Did one parent remove the child from the habitual residence, retain the child in the United States, or state that he or she will not return the child after the agreed limited time in the United States?

5.    When did the retention or removal occur?

Practice Note: There is an important one-year deadline to consider from the date of the retention or removal.

6.    Does the left-behind parent have rights of custody under the laws of the habitual residence?

Practice Note: This is a legal question that should be determined in consultation with a legal professional in the country of the habitual residence.

7.    Was the left-behind parent exercising his or her rights of custody at the time of the removal or retention?

If you answered yes to the most or all of the above questions, then you should consult with an experienced attorney regarding the Hague Convention.

Hague Convention cases are unique and increasingly more frequent. The cases are unlike family law cases in many respects. A Hague Convention return case can be filed in federal court or state court. The treaty contemplates that the case from start to finish will be completed in six weeks. Time is therefore of the essence. Which country has custody jurisdiction can have a long-lasting impact on families and their cases.

There may also be alternative legal routes to consider if, for example, you have a custody order from another country. In addition to a Hague Convention return case, you may want to consider a Hague Convention access case or registration and enforcement of a custody order. Stay tuned for the next blog on registration and enforcement under the Uniform Child Custody Jurisdiction and Enforcement Act.

This information is not a substitute for legal advice applicable to your case.  Consult an attorney with respect to your circumstances. If you have questions, please reach out to Leah M. Ramirez, Esquire at lramirez@markhamlegal.com.

QDRO Corner: Survivor Benefit and Beneficiary Elections

Defined benefit plans allow for a participant to elect to provide a survivor benefit. A survivor benefit is a monthly payment to a survivor which begins upon the death of the plan participant. In Maryland this is a separate benefit from the participant’s retirement benefit and must be requested and treated as a separate asset in court or when negotiating a settlement.

A participant must make an election at retirement (or sooner) if the participant is going to provide a survivor benefit for a spouse. However, this election is not reliable for a former spouse expecting to receive a survivor benefit in the future. This is true for a few reasons:

First, some plans, like the CSRS and FERS will automatically terminate survivor benefit elections made prior to a divorce, even if the participant is already retired and in pay status. (Typically, once a participant is in pay status no changes can be made to a survivor benefit election).

Second, if the participant is not yet in pay status, then the election form can be voided by the participant, and a new election made either for someone else, or for no one else. (Typically, a participant can change their survivor benefit elections at will prior to retiring, or going into pay status).

Third, some plans require that a survivor benefit be provided for a current spouse, unless waived. If the participant remarries without a COAP in place, then the plan rules may require a survivor benefit for a new spouse.

It is important that even if the former spouse is only awarded a survivor benefit from the participant’s defined benefit plan that the former spouse get the benefit secured by a COAP or QDRO. The QDRO should explicitly state the benefit for the former spouse, and be submitted timely with the divorce to limit the opportunity for problems. If you want to know if your QDRO language is clear, please reach out and we can review your Order.

If you have any QDRO questions, please reach out to Veronica Dulin at vdulin@markhamlegal.com.

QDRO Corner: Fees Related to QDRO Preparation and Implementation

In the general process of having a QDRO prepared and implemented, there are more fees than just the fee to have the Order drafted by the attorney. These fees can add up to a substantial amount of money, and therefore it is important to address them at least generally in an agreement.

In total, the fees can include:

1.    Drafting Attorney’s Fee

2.    If the drafting attorney represents only one party, then the other party will likely incur fees to have an attorney review the QDRO on his/her behalf

3.    Court fees to obtain the certified copies

4.    Postage to mail or otherwise deliver the certified copies to the Plan

5.    Review fee charged by the Plan

What is the review fee charged by the Plan? Plans of course have their own attorneys or other trained staff review submitted QDROs to ensure that if implemented, the Plan remains within compliance with ERISA or other laws regulating their plan, and within the rules of their plan. The Plan is allowed to pass these fees on to plan participants if the fee is published so that the participant has notice of such fee in advance. Note, the amount of the fee is not required to be published, only the fact that there is a fee and that it may be passed on to the participant.

Fees typically range from approximately $300 - $2,400 per order and are determined by the Plan. The fee is not paid out-of-pocket by the participant, but rather the fee is taken from the participant’s account during the transfer or review process.

Many plans will allow for this review fee to be transferred entirely to the alternate payee, or to be shared between the parties. If this fee is not addressed in the QDRO, plans typically will default to charging it to the participant, or rejecting the order for vagueness. It is best to contact the plan while still negotiating the agreement so that this fee can be addressed as a part of the larger agreement.

QDRO Corner: Titling Court Orders to Divide Retirement Interests

ERISA (Employee Retirement Income Security Act) provides the protections for retirement interests for employees of private companies. The terms and regulations in ERISA are commonly used language in this area of law. Most notably the terms “domestic relations order” and “qualified domestic relations order” come from ERISA; however, these terms only apply to plans governed by ERISA.

Federal, state, and local government plans are specifically exempt from ERISA. This exemption means that plans provided by federal, state, and local governments can be non-divisible and non-transferrable, even by court order. If you are representing a spouse of a government employee, be sure to review the plan documents to understand whether the plan can be divided, and if so, what type of order the plan will accept.

Since government plans are not subject to ERISA, they do not use the term “qualified domestic relations order” and certain plans will reject the order on those grounds alone. Popular terms used for government plans in the Washington D.C. Metro area include Court Order Acceptable for Processing (federal government for Federal Employees’ Retirement System and Civil Service Retirement System), Qualifying Court Order federal government for the Thrift Savings Plan); and Eligible Domestic Relations Order (Maryland State Pension System).

The plan document or summary plan document should include the preferred term for any plan as well as any information regarding limitations on divisibility or transferability of interest. Be sure to request these documents early in your representation of a client to best negotiate on their behalf, or to ask the Court for proper relief.

If you have any QDRO questions, please reach out to Veronica Dulin at vdulin@markhamlegal.com.

QDRO Corner: Beware of Model Orders

Many plans provide model or sample orders for QDRO attorneys to use in the preparation of the Order for their clients. These are extremely useful tools to determine a plan’s preferred terms and mandatory provisions. However, these can also be misleading, or omit terms or provisions that may be beneficial to your client.

For example, most pension plans governed by ERISA provide for both a shared and a separate interest payment option. However, if the plan prefers one division method to another, then it may provide only the preferred model to you or try to dissuade you from using the other division method.

Non-mandatory QDRO terms may include how to reconcile if the plan pays one party’s share to the other by accident. Omitting this term may lead to litigation over who had the burden to recognize and fix the mistake, the plan or either party. An easy way to avoid the potential litigation is to state the protocol here, such as reimbursing the plan, or the other party.

Another non-mandatory term that is quite useful is for the court to retain jurisdiction in the event an amended QDRO is needed. Amended QDROs are sometimes necessary due to no fault of the parties, such as a merger with another plan resulting in changed rules, and it is best to know that the Court will always have jurisdiction to enter the new order if needed.

Think carefully about your client’s particular needs with respect to their QDRO and if you have a model order, treat it as a great first step in drafting the order.

QDRO Corner: Defined Contribution Plan Loans

Loans from defined contribution plans are easy to overlook when reviewing a statement for the current balance. However, if there is an outstanding loan, whether the outstanding loan balance is included or excluded from the account balance can dramatically alter the amount a spouse receives when dividing the account.

If the outstanding loan balance is “included” or “taken into account” then the loan balance will reduce the account balance before account is divided. For example, say the parties to a settlement decide that the defined contribution account shall be divided equally, the account has a total value of $20,000, and there’s an outstanding loan balance of $5,000 that shall be taken into account. The math to divide the account is as follows:

$20,000 (total account value)
- $5,000 (outstanding loan balance)
$15,000 (account balance to be divided between the parties)

$15,000 (account balance to be divided between the parties)
÷ 2 (for equal division between the parties)
$7,500 (total funds to be transferred to spouse)

If, however, the outstanding loan balance is to be “disregarded” or “excluded,” the spouse receives a different amount. Using the same numbers as above, if disregarding the loan balance, the math is as follows:

$20,000 (total account value)
÷ 2 (for equal division between the parties)
$10,000 (total funds to be transferred to spouse)

If you are unsure whether a plan participant has taken out loan, let the person preparing the QDRO know so she can investigate and make sure the division will be as the parties intended.

QDRO Corner: Cash Balance Plans

A cash balance plan is a hybrid plan between a defined benefit and a defined contribution plan, offered by some private employers.

A statement for a cash balance plan will look very similar to a statement for a 401(k) account, in that the statement will show a specific dollar amount in what appears to be an account for the participant as of a date certain. However, this is not a separate account for the participant with that specific amount of funds in it. Instead, this is the actuarial value of the plan based on the participant’s life.

Most cash balance plans can only be divided in the same manner as a defined benefit plan, wherein the alternate payee receives a share of the monthly payment to the participant, or receives their own share in which the monthly payment amount is actuarily determined based on the alternate payee’s life.

Some cash balance plans may be divided like a defined contribution plan, wherein the alternate payee receives a lump sum. This is the small minority of cash balance plans.

Before finalizing a separation agreement that includes the division of a cash balance plan, it is best to have the QDRO prepared and communicate with the plan to ensure that the division upon which the parties are agreeing will be accommodated by the plan.