Making QDROs Fun With Ray Dietrich
Episode 12
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Disclaimer: The materials and content within this podcast are intended as general information only and are not to be considered a substitute for professional legal advice or a consultation with a lawyer.
1. Family Law Tip of the Week (:54)
In Arizona, one of the factors that determines how much child support is paid is how much parenting time is exercised. Just a couple of hours in your parenting time could make a huge difference in your child support obligation. For example, recently we met someone who was exercising parenting time with his daughter from 9 a.m. to 7 p.m. on the days he was seeing her. This amounted to 24 days of parenting time credit per year. If he had just exercised 2 more hours of time on those days he was seeing her, he would have doubled his parenting time credit. This would have resulted in a huge reduction in his child support obligation.
If you are in Arizona, take a look at the Arizona Child Support Guidelines or check your local rules for more information.
2. Making QDROs fun with Ray Dietrich (1:49)
Ray’s Background
Ray is a published author, speaker and litigator. He has written “Qualified Domestic Relations Orders: Strategy and Liability for the Family Law Attorney.” For the purposes of today’s broadcast, however, Ray is going to be talking to the layperson in the midst of a divorce or the person who has gone through a divorce and has questions about QDROs (Qualified Domestic Relations Orders).
Ray’s first career was not as a lawyer. Previously, he was in sales, obtained a degree in Business Administration, worked for some Fortune 500 companies, worked in the Hillsboro County Sheriff’s Office (Tampa, Florida) as a deputy, then went to law school. Ray fell into the QDRO market and has been doing QDROs full-time since 2002.
(4:18) Ray didn’t plan to go into the QDRO field after law school. After law school, he thought he would go back to Tampa and be a DUI lawyer. However, when he went to law school, he clerked for a family law attorney in Ohio, and one of his first assignments was to prepare a QDRO. As Ray worked in this area for 2.5 years, he found out how mishandled QDROs are. Ray thought this was a perfect niche market to go into.
(5:36) In the states where Ray practices, you have to be an attorney to draft a QDRO because it is legal advice. It is affecting someone’s legal rights. It is an order, not a form. However, there is a lot of unlawful practice of law in this area.
What is a QDRO?
(6:32) “QDRO” stands for a Qualified Domestic Relations Order.
(7:02) In many cases Ray sees people getting divorced, then the divorce attorney whispers in their ear at the end of the case “by the way- you need a QDRO.” This is a special court order created by Congress in 1984, and it assigns benefits to a spouse, former spouse, child or other dependent. You can use it to collect child support arrearages, and you can use it to collect spousal support arrearages. It is a great tool.
What a QDRO Can Do For You
(7:54) Ray has found that most Virginia attorneys did not know that you could get an arrearage satisfied with a QDRO. He recently did a case note on this issue to flush out the reasoning in a “bad” case that caused the attorneys to believe you could not satisfy arrears by way of a QDRO.
(8:22) Prior to the creation of this type of court order, an ex spouse could not get at certain assets (like pensions and/or 401Ks). The creation of QDROs created an exception to the general rule that certain assets were off-limits.
(9:10) Wendy clarifies the point Ray is trying to make by giving him a fact pattern in which two parties have been divorced and share children in common. Husband is obligated to pay child support but has gotten behind. In this case, the Wife could go to court and ask the judge to sign an order giving her part of his retirement plan for arrears.
(9:34) Ray confirms that QDROs are expressly structured this way to allow people to go and collect child and spousal support arrears. (Great news from Wendy’s perspective.)
QDROs and The Interplay Between Federal and State Law
(10:10) Wendy asks if this rule applies regardless of the state that a person resides in in the US. Ray comments that this gets a little bit complicated; there are 2 laws involved here. To clarify – Ray is talking about federally protected plans under ERISA. Other city or state plans are Non-ERISA plans which are a whole different set of laws.
(10:59) Wendy asks Ray how a person can tell if his/her plan is federally protected. Ray says you can tell based upon the plan documents. The employer is the first clue. When you are talking about federal plans (ERISA applies), they are governed by federal law. However, the substance of the award and how it is structured depends on each individual state. You might have dueling laws, in other words.
(12:42) Put another way, Arizona state law may dictate that a pension is divided differently than the law in Florida. Whether or not a state is a community property state or not can dictate how easy (or hard) it is to get at benefits. In community property states, it is easier to get access to funds than at common law.
(14:20) Ray is licensed to practice in several states. He is in 6 states, but lives in Arizona. He is licensed in Arizona, Florida, Nevada, Virginia, the District of Columbia and New York.
TIMING, TIMING, TIMING!
(14:48) From Ray’s perspective, one of the key points regarding QDROs is timing.
The most important thing is to have the QDRO entered simultaneously with the divorce decree. The reason is (with only a couple of exceptions), the ex spouse loses benefits at divorce. The QDRO re-secures the benefits. The divorce decree creates the interest, but the QDRO actually secures the interest. That is the #1 area of malpractice for attorneys.
(16:07) In 85-90% of cases that Ray handles, QDROs are entered post-decree. Typically, the family law attorney gets the party divorced, whispers in the client’s ear that they need to get a QDRO, then says “good luck.” At that point, the benefits are gone, and the other party has to find someone to prepare the QDRO. That leaves a gap from the time the divorce is granted until the plan accepts the QDRO, and this is the risk area.
(16:41) Get it done with the divorce decree. The other thing that goes hand in hand with that – these documents are court orders. These aren’t forms. One word could change what a person is going to get in terms of money or benefits, gains or losses, excluded or included.
(17:39) Don’t use models. These may not protect your interests. The models will have big letters that say “This is not legal advice. Please consult with an attorney.” That is telling you to be careful.
(18:15) Big piece of advice – consult with an attorney! If the divorce is already over, get the QDRO done ASAP. If something happens to the retirement plan participant or the money, the ex-spouse will not get anything from the plan without a fight.
(19:00) Once a judge signs a divorce decree and the divorce is final, the ex’s rights to the retirement account no longer exist. There are two exceptions to this, however.
(20:49) Practically, if a QDRO is not done in the right timeframe, if the person who has the retirement plan dies, the ex-spouse may not be able to get ANYTHING without lawsuits, lawyers and spending lots of money. Ray gives a specific example of a case he is handling involving the U.S. Treasury in which this happened. The case is a mess and is tied up in court. It is a nightmare for the client which, if it had been done right, would have amounted to $3,700/month for her entire life (and she is in her 30s)!
(22:36) Most plans are underfunded. If a plan can get out of paying someone benefits for the rest of their lives, they will try.
(23:28) Next, Ray and Wendy talk about the cost of getting a QDRO done up front vs. dealing with a big mess like the one described above. A lot of the cost depends on different factors, so Ray doesn’t throw numbers out like some people do.
(25:13) Ray gives another example of a case he won that was a lawyer malpractice case. Again in that case, it would have been a simple matter if it had been done in the right time frame.
The QDRO Drafting and Approval Process
(25:43) The drafting process for Ray is quick. Sometimes the amount of time it takes the parties to approve the QDRO can hold things up. However, what usually holds the approval process up is the plan administrator. This is why a lot of attorneys are uncomfortable with the process; the plan administrator (usually in a different state) has more discretion over the disbursement of the funds than the case judge.
(26:52) The law says that the plan administrator has to approve the order within a reasonable amount of time. To some plans, that is 1.5 years. In general, from start to finish, you are looking at 90-120 days from start of process to payout starting. This is if you have a reputable plan administrator.
(27:34) Draft QDROs don’t always go to the plan administrator for approval. Because Ray has been doing this for so long (and he has access to a database of plans), he doesn’t typically go through pre-approval. Ray has developed good relationships with plan administrators that allow him to get pre-approval responses quickly (if he needs to get a pre-approval).
(30:30) Even in a simple divorce case (that might otherwise take a couple of months), Ray recommends that the QDRO be entered at the same time as the decree. For some reason, most attorneys wait on the QDROs until the eleventh hour. If you start working on the QDRO right away, this will help you not to be scrambling at the last minute.
(31:48) Without a doubt, put off a divorce (no matter how simple) until the QDRO is completed.
(32:13) There are other things you CAN do if you can’t put off the divorce. You can put the plan on notice, which will secure the benefits for a limited period of time. (See Carmona case note here.)
Exceptions: Vesting and Plan Documents Rule
(32:45) When two parties are getting divorced AND they are already retired, this is an exception to the general rule that a ex-spouse has no more retirement benefit entitlements. In general, if people are married (under an ERISA plan), once a participant elects while they are married, the only way for the spouse NOT to get survivor benefits is to waive the benefits within 90 days before retirement (notarized before the plan agent).
(34:36) The other exception to the general rule that a divorce ends a spouse’s interest in the retirement of the ex is the “plan document rule.” Participants are required to fill out documents with the plan administrator. Plan documents can refer to a wide range of documents, including the beneficiary election form. If a party is divorced and they don’t remove the ex from the beneficiary form by executing a new designation, then the ex spouse will STILL get the retirement benefits! (See Kennedy case note on Ray’s website.) Holding for Kennedy: The plan document rule trumps the operation of law rule or a waiver.
(38:21) Ray’s contact information is galleonnetwork.com. His website has great resources, so check it out!
3. Thoughts from the Life Coach (39:10)
Want a way to improve your mood? James has a quick fix. Give a compliment. And make it sincere. Don’t overthink the compliment. Just make it real.