We were recently hired by a Massachusetts attorney to draft the Domestic Relations Order to divide the husband's pension pursuant to the parties' Divorce Agreement. He works for the Commonwealth of Massachusetts.
As I studied this plan, and worked with the Commonwealth's attorney to decipher the plan's terms, it came to my attention that there was a provision of the plan that allows a "new" spouse to elect her share of any pre-retirement benefit, even if the former spouse was supposed to get a portion of the pre-retirement benefit. The "new" spouse's election will defeat the former spouse's interest, and the former spouse would get nothing!
This kind of caveat to a plan is important to know about if you are the attorney representing the "soon to be" former spouse. People are working far beyond "normal retirement age," and this means more risk to the former spouse's share. THIS IS A BIG DEAL IN THAT THE PENSION IS USUALLY THE PARTIES' LARGEST MARITAL ASSET.
There are also specific options to this plan for post-retirement benefits that need to be considered and addressed in any agreement, which I have not addressed here.
So, what to do?
1. You can make sure there is life insurance in place to protect the former spouse until the "ex" retires. Keeping life insurance in place may not be typical, and in most cases, it must be negotiated.
2. Know the plan options and limitations.
3. Get help from us!
Call 401-841-5700 or see our website at http://www.counselfirst.com/.
Wednesday, July 28, 2010
Thursday, July 22, 2010
Share the good things, and let others know who they can trust.
Due to the fact we handle quite a few military family court cases, I have subscribed to the online military.com newsletter so I frequently get updates about major things happening within the different branches of the military, all over the world.
Today, I received an article entitled "Army Spouse Shares Tips for Deployment." The spouse of a military member who has been deployed half a dozen times was sharing tips with other families about what she does to prepare. For example, start early! One tip I found specifically important was that she asked her military friends to provide her with a list of plumbers, electricians, handy men, etc. that had been reasonably priced and trustworthy. As a mother and Wife whose husband handles most of such things, I thought this was brilliant! The comments on the article were from spouses that expressed hearing these things helped them feel like they were less alone, going through a scary situation. Knowing who you can trust and count on to do the job right is critical to making tough times less difficult.
I would like to encourage people to pass along their good experiences to others that they have had with their lawyer. People often rush to spread the word about a lawyer they did not like or thought did not do a good job because that is what people expect to hear about lawyers. They forget to share when their lawyer did a great job, or helped them through a difficult time. This has more to do with human nature and privacy than much else, but I would venture to guess that most people would appreciate knowing who they can trust and that someone else had a good experience when it comes to their personal business.
So, if you have a lawyer that you count on and that gets the job done for you, let other people know!
If you do not, then contact our office at 401.841.5700, and let us answer your legal questions.
Today, I received an article entitled "Army Spouse Shares Tips for Deployment." The spouse of a military member who has been deployed half a dozen times was sharing tips with other families about what she does to prepare. For example, start early! One tip I found specifically important was that she asked her military friends to provide her with a list of plumbers, electricians, handy men, etc. that had been reasonably priced and trustworthy. As a mother and Wife whose husband handles most of such things, I thought this was brilliant! The comments on the article were from spouses that expressed hearing these things helped them feel like they were less alone, going through a scary situation. Knowing who you can trust and count on to do the job right is critical to making tough times less difficult.
I would like to encourage people to pass along their good experiences to others that they have had with their lawyer. People often rush to spread the word about a lawyer they did not like or thought did not do a good job because that is what people expect to hear about lawyers. They forget to share when their lawyer did a great job, or helped them through a difficult time. This has more to do with human nature and privacy than much else, but I would venture to guess that most people would appreciate knowing who they can trust and that someone else had a good experience when it comes to their personal business.
So, if you have a lawyer that you count on and that gets the job done for you, let other people know!
If you do not, then contact our office at 401.841.5700, and let us answer your legal questions.
Wednesday, July 7, 2010
Shield or Sword: How the ServiceMember Civil Relief Act made this adoption much more complicated!
I recently represented a military member who is on active duty. I was appointed by the court because when a military member is on active duty, the Servicemembers' Civil Relief Act (federal law) requires counsel to be appointed if the person has notice of the action, but does not appear. It is slightly more complicated than that, but you get the idea. If the military member does not "enter his appearance, " i.e. file a piece of paper with the court that states they are "entering their appearance" or an attorney is entering on their behalf, that military member has not consented to the jurisdiction of the court and the court order or judgment can be re-opened when that military member finishes their active duty.
In a typical adoption, if the biological parent had notice of the hearing, it would go forward without him or her, their parental rights would be terminated, and the child could be adopted.
In this case, there were additional hoops to go through to get it done, and we were still concerned that the military member could come back in two years and contest the adoption. Long story short, he cooperated with the documents, finally got us the originals with his signature, and this family can go on with their lives without worrying about a sledge hammer two years down the road.
I guess in summary, I wanted to point out that I am all for our military members and appreciate all that they do for our country. It is frustrating though, when the system can be manipulated. The people adopting this little girl did not deserve this additional frustration! It is typical in this business to hear the saying, "the Act is meant to be used as a shield, not a sword." This is a true example.
In our office, in Newport, we represent a good number of military members and their spouses. If you have a military family law question or concern, call us at 401-841-5700 or visit our website at www.CounselFirst.com
In a typical adoption, if the biological parent had notice of the hearing, it would go forward without him or her, their parental rights would be terminated, and the child could be adopted.
In this case, there were additional hoops to go through to get it done, and we were still concerned that the military member could come back in two years and contest the adoption. Long story short, he cooperated with the documents, finally got us the originals with his signature, and this family can go on with their lives without worrying about a sledge hammer two years down the road.
I guess in summary, I wanted to point out that I am all for our military members and appreciate all that they do for our country. It is frustrating though, when the system can be manipulated. The people adopting this little girl did not deserve this additional frustration! It is typical in this business to hear the saying, "the Act is meant to be used as a shield, not a sword." This is a true example.
In our office, in Newport, we represent a good number of military members and their spouses. If you have a military family law question or concern, call us at 401-841-5700 or visit our website at www.CounselFirst.com
Dividing Retirement Plans - Know All the Pieces
The following article talks generally about tax consequences of dividing retirement accounts in divorce. Be aware that taxes are only one piece of what is addressed within a QDRO. All too often, the decree or agreement simply states that the retirement plan should be divided equally. This is not enough for those plans that have additional aspects, like survivor benefits, cash contributions that can be withdrawn, loans and much more.
Your attorney should be aware of every aspect of the retirement plan, and state in the decree and/or settlement agreement how it is being divided. Our divorce attorneys draft these types of Orders on a weekly basis for their clients, as well as for other attorneys.
Call if you have questions, whether you already have an attorney that needs more information, or you are just beginning the process. 401-841-5700 or http://www.counselfirst.com/
BY Bill Bischoff, SmartMoney©
2010 Dow Jones & Company. All Rights Reserved. SmartMoney® is a registered trademark of Dow Jones & Company, Inc. SmartMoney — 06/22/10
In addition to all the other stuff, getting divorced is a major financial transaction. As such, it can have serious tax implications, including some pitfalls you’ll want to avoid. This is especially true when it comes to splitting up tax-favored retirement accounts between you and your soon-to-be ex. You’ll need to plan ahead to make sure the tax results turn out OK for you. Here’s the story.
Use QDRO to divide up qualified retirement plan accounts. Say you have a qualified retirement plan at work (such as a profit-sharing or 401(k) plan) or a self-employed or small business retirement program (such as a “Keogh” pension plan). You’ll probably have to divide up your retirement account (or accounts) between you and your ex as part of the divorce property settlement. However, doing it carelessly can create a real tax fiasco for you.
To divide up qualified retirement plan accounts the tax-smart way, you need to establish a qualified domestic relations order, or QDRO. What’s a QDRO? It’s simply some boilerplate language that should be included in your divorce papers. First and foremost, the QDRO establishes your ex’s legal right to receive a designated percentage of your retirement account balance or designated benefit payments from your plan. The good news for you is that the QDRO also ensures that your ex, and not you, will be responsible for the related income taxes when he or she receives payouts from the plan.
The QDRO arrangement also permits your ex-spouse to withdraw his or her share of the retirement plan money and roll it over tax-free into an IRA (assuming the plan permits such a withdrawal). That way, your ex can take over management of the money while postponing income taxes until withdrawals are taken from the rollover IRA.
Bottom line: The QDRO is a fair deal for both you and your ex because it ensures that the person who gets retirement plan payouts will also owe the related income taxes. Who can argue with that?
Here’s the rub. If money from your qualified retirement plan gets into your ex-spouse’s hands without a QDRO being in place, you face a potentially disastrous tax outcome. You’ll be treated as if you received a taxable payout from the plan and then voluntarily turned the money over to your ex. So you’ll owe all the taxes while your ex gets the money tax-free. Ouch! To add insult to injury, you may also get stung with a 10% penalty tax if this happens before you turn age 59½.
So make sure your divorce papers include the necessary QDRO language. Helpfully enough, the government even provides sample language in IRS Notice 97-11 (it can be easily tracked down with an Internet search).
You would think this advice would be so well-known that I wouldn’t have to give it. You would be wrong. There have been tons of court cases where individuals turned over retirement plan money to their ex-spouses without bothering with QDROs. Those individuals all wound up getting socked with big tax bills. Not fair to them, but the tax rules are often unfair to folks who don’t know what they are doing.
Be careful with IRAs too. You don’t need a QDRO to divide up an IRA between you and your soon-to-be ex without dire tax consequences. You can simply arrange for a tax-free rollover of money from your IRA into an IRA set up in your ex’s name. Then your ex can manage the rollover IRA and defer taxes until he or she begins taking money out of the account. As with a QDRO, this procedure ensures that your ex, and not you, will owe the resulting income taxes. These rules apply equally to traditional IRAs, Roth IRAs, SEP accounts, and SIMPLE IRAs (they are all considered IRAs for this purpose).
You still need to be careful here. The nice tax-free rollover deal only applies when your divorce agreement requires the rollover. What happens if money from your IRA gets into your ex’s hands before or after the divorce without such a requirement? You’ll be treated as if you received the money, and you’ll be on the hook for the related taxes--even though you didn’t actually keep the money. Plus you’ll usually owe a 10% penalty tax if you’re under age 59½. To avoid this fate, you should never transfer IRA money to your ex in advance of a legal requirement in your divorce papers to do so.
The last word. You can divide up tax-favored retirement account money the tax-smart way or the tax-dumb way. Unfortunately, some otherwise-competent divorce attorneys know little or nothing about taxes. That doesn’t cut it. You need a legitimate tax pro who has handled lots of divorce-related tax issues on your side.
While your attorney might be able to fill that role, don’t take it for granted.
Your attorney should be aware of every aspect of the retirement plan, and state in the decree and/or settlement agreement how it is being divided. Our divorce attorneys draft these types of Orders on a weekly basis for their clients, as well as for other attorneys.
Call if you have questions, whether you already have an attorney that needs more information, or you are just beginning the process. 401-841-5700 or http://www.counselfirst.com/
Divorce and your retirement accounts (found on fidelity.com)
BY Bill Bischoff, SmartMoney©
2010 Dow Jones & Company. All Rights Reserved. SmartMoney® is a registered trademark of Dow Jones & Company, Inc. SmartMoney — 06/22/10
In addition to all the other stuff, getting divorced is a major financial transaction. As such, it can have serious tax implications, including some pitfalls you’ll want to avoid. This is especially true when it comes to splitting up tax-favored retirement accounts between you and your soon-to-be ex. You’ll need to plan ahead to make sure the tax results turn out OK for you. Here’s the story.
Use QDRO to divide up qualified retirement plan accounts. Say you have a qualified retirement plan at work (such as a profit-sharing or 401(k) plan) or a self-employed or small business retirement program (such as a “Keogh” pension plan). You’ll probably have to divide up your retirement account (or accounts) between you and your ex as part of the divorce property settlement. However, doing it carelessly can create a real tax fiasco for you.
To divide up qualified retirement plan accounts the tax-smart way, you need to establish a qualified domestic relations order, or QDRO. What’s a QDRO? It’s simply some boilerplate language that should be included in your divorce papers. First and foremost, the QDRO establishes your ex’s legal right to receive a designated percentage of your retirement account balance or designated benefit payments from your plan. The good news for you is that the QDRO also ensures that your ex, and not you, will be responsible for the related income taxes when he or she receives payouts from the plan.
The QDRO arrangement also permits your ex-spouse to withdraw his or her share of the retirement plan money and roll it over tax-free into an IRA (assuming the plan permits such a withdrawal). That way, your ex can take over management of the money while postponing income taxes until withdrawals are taken from the rollover IRA.
Bottom line: The QDRO is a fair deal for both you and your ex because it ensures that the person who gets retirement plan payouts will also owe the related income taxes. Who can argue with that?
Here’s the rub. If money from your qualified retirement plan gets into your ex-spouse’s hands without a QDRO being in place, you face a potentially disastrous tax outcome. You’ll be treated as if you received a taxable payout from the plan and then voluntarily turned the money over to your ex. So you’ll owe all the taxes while your ex gets the money tax-free. Ouch! To add insult to injury, you may also get stung with a 10% penalty tax if this happens before you turn age 59½.
So make sure your divorce papers include the necessary QDRO language. Helpfully enough, the government even provides sample language in IRS Notice 97-11 (it can be easily tracked down with an Internet search).
You would think this advice would be so well-known that I wouldn’t have to give it. You would be wrong. There have been tons of court cases where individuals turned over retirement plan money to their ex-spouses without bothering with QDROs. Those individuals all wound up getting socked with big tax bills. Not fair to them, but the tax rules are often unfair to folks who don’t know what they are doing.
Be careful with IRAs too. You don’t need a QDRO to divide up an IRA between you and your soon-to-be ex without dire tax consequences. You can simply arrange for a tax-free rollover of money from your IRA into an IRA set up in your ex’s name. Then your ex can manage the rollover IRA and defer taxes until he or she begins taking money out of the account. As with a QDRO, this procedure ensures that your ex, and not you, will owe the resulting income taxes. These rules apply equally to traditional IRAs, Roth IRAs, SEP accounts, and SIMPLE IRAs (they are all considered IRAs for this purpose).
You still need to be careful here. The nice tax-free rollover deal only applies when your divorce agreement requires the rollover. What happens if money from your IRA gets into your ex’s hands before or after the divorce without such a requirement? You’ll be treated as if you received the money, and you’ll be on the hook for the related taxes--even though you didn’t actually keep the money. Plus you’ll usually owe a 10% penalty tax if you’re under age 59½. To avoid this fate, you should never transfer IRA money to your ex in advance of a legal requirement in your divorce papers to do so.
The last word. You can divide up tax-favored retirement account money the tax-smart way or the tax-dumb way. Unfortunately, some otherwise-competent divorce attorneys know little or nothing about taxes. That doesn’t cut it. You need a legitimate tax pro who has handled lots of divorce-related tax issues on your side.
While your attorney might be able to fill that role, don’t take it for granted.
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