divorce

What is a QDRO?

February 23, 2023 By Denise French, CVA, MAFF, CDFA, CRPC

A QDRO, pronounced “kwa-dro”, or Qualified Domestic Relations Order, is a court order granting a non-employee spouse the right to part of the retirement benefits their former spouse has accumulated in their company’s retirement plan.

If you are divorcing a spouse with a company retirement plan governed by The Employee Retirement Income Security Act of 1974 or ERISA such as a 401k or a pension plan, you will need a QDRO to receive those funds. The QDRO process has a definitive flow, its own terminology and can take some time to complete. We will walk through an example of a couple where the husband works at ABC Company and the wife is receiving a portion of the ABC Company 401k from her husband. In this example we will walk through the process from settlement in mediation to QDRO funds receipt to give the reader a better understanding of QDRO terminology, how the process works and the timeline.

QDRO Terminology

Terminology with QDRO’s is important but thankfully, fairly straightforward:

Plan: This is the specific retirement plan to which the order applies. You need a QDRO for each plan. For example, if you are divorcing an ExxonMobil employee, you could be awarded a portion of ExxonMobil 401k and the ExxonMobil pension plan. Those are two different plans and two different QDRO’s will be needed. (Note there are other plans at ExxonMobil for certain employees such as Restricted Stock Units and Supplement Pension Plans – those are not ERISA plans and do not need QDROs but have their own issues we will cover in a separate article).

Participant: This is the individual who will be assigning his or her benefits to an alternate payee. This is the spouse who works for the company and whose name the plan is under.

Alternate Payee: This is the individual (usually a former spouse) who will receive the benefits.

Address of Record: The address on the QDRO form for the alternate payee and the participant is what will be used by the QDRO department to communicate with you. It is critical to have the correct address listed as this is how you will receive communication.

Description of Benefits

The order must clearly articulate the benefit to be assigned to the alternate payee. The order could use a flat dollar amount or a formula.

Here are two examples:

Flat dollar amount: $500,000

Formula: 50% of the participant’s vested account balance as of January 1, 2023, adjusted for any investment gains or losses, stock splits, dividends and/or interest from January 1, 2023 through the date of distribution.

In a turbulent market such as 2022, this is a critical element to understand. If you were awarded 50% of a 401k balance in April of 2022 which was invested in growth stocks, and then didn’t take receipt until August of 2022 – that balance may be much lower over the time period. Likewise, if you only owned oil and gas stock during that same time period, you may be very happy you were awarded gains and losses as the account could have grown considerably. We cannot over-emphasize the importance of considering investment performance as there is a lag between the determination date (January 1, 2023 in the above example) and the date the benefits are actually set aside for the alternate payee (August of 2023 in our example below).

It’s important to understand if you are receiving a flat dollar amount or a percentage split and if the percentages include gains, losses, interest, and dividends. (And no, you will not usually get an opposing attorney to agree that you only participate in the gains but not the losses.)

Which option is better? Well, that depends. When and if we suggest flat dollar amounts in QDRO’s it is because the parties have usually agreed to a set amount as part of an overall division and for a specific purpose – like paying off debt or purchasing a new house. Our concern is always if you are awarded a set dollar amount, what happens if the market falls and those dollars do not exist months later when the QDRO order is completed? That becomes an issue.

Awarding the alternate payee a portion of the account on a percentage basis with gains, losses, dividends and interest from the date of division to the date of distribution is certainly more prevalent in our experience. This is more prevalent as both parties participate fully in the risk or reward of the markets from the time of division until the funds are distributed.

QDRO Timeline – April Division to August Receipt of Funds

It takes several months from the date of division to the date of receipt. Let’s continue with our example. Jane and John went to mediation on April 2. In mediation, the parties agreed on a settlement which awarded Jane 52% of the ABC Company 401k of her spouse John. They signed a Mediated Settlement Agreement or MSA which was final and binding on April 2. The next day the wife’s attorney calls a QDRO firm and asks them to draft a QDRO’s for this settlement.

It then took until May 15 for the decree to be finalized. The attorneys had to draft the decree, agree on the language in the drafting and then set a court date to finalize the divorce with the court. This all required effort and time. During that time a QDRO firm created a QDRO for the 401k, sent the QDRO’s into ABC Company’s custodian for preapproval and it came back approved. The parties were officially divorced on May 15 via a “prove up” in court. The divorce decree and the QDRO were all entered together and signed by the judge.

The wife paid extra for the QDRO company to pick up the QDRO in the clerk’s office and send it to ABC Company after a judge’s signature was secured. The county clerk is not responsible for this, the QDRO firm is not automatically responsible for this – the receiving party is responsible. Sometimes the QDRO firm who drafted the QDRO will do this, but you must confirm with them. It is not automatic and usually involves an extra fee. In this example the wife paid an extra $100 to the QDRO firm and they picked up the signed QDRO from the county clerk’s office and sent it to the company which manages ABC Company’s 401k.

About 30-45 later, ABC Company sends a letter to the wife’s address of record notifying her the QDRO has been received and is being reviewed. Now the alternate payee or former wife can call ABC Company and discuss the QDRO with them. However, ABC must still review the QDRO and confirm it is accurate. If you had a QDRO firm prepare your QDRO and send it in for pre-approval, this should not be an issue. In our example, let’s assume the letter was received by Jane on June 25.

ABC Company must still review the QDRO which takes another 30-40 days. On approximately August 2 in our example ABC sent a second letter to the alternate payee for the 401k QDRO letting her know the QDRO is approved, an alternate payee account now exists and they provide distribution options.

In this example, the division of assets was decided on April 2, but the account was not available until August for the former wife.

Distribution

Although this step frequently occurs at the same or immediately following the account segregation, it is important for the plan to follow the normal distribution process. In other words, the alternate payee must be provided with the necessary disclosures and then must submit the regular distribution request forms. Most plans include language that allows the alternate payee to take a distribution right away, but some plans limit that ability until the participant would otherwise be able to take a distribution. When distributions are permitted right away, it is our experience that the alternate payee is usually eager to do so.

Taxes

When an ex-spouse receives a cash distribution of plan benefits pursuant to a QDRO, he or she is responsible to pay the associated income tax. You are taxed on these funds at your ordinary income rates as if you had a job which paid you the same amount.

One key difference is that a cash-out distribution from a QDRO is not subject to the 10% early withdrawal penalty. For example, going back to Jane Smith, she is 45 years old. If she were to take funds out of a pre-tax retirement account to use as cash, she would pay tax on the proceeds in addition to a 10% penalty. However, if the cash withdrawal is from the QDRO funds directly, the 10% penalty is not applied. Let’s assume Jane needs $100,000 to establish an emergency fund, pay divorce debt and buy a new car. She would take $100,000 of her QDRO in cash and pay taxes based on her marginal tax bracket that year. The remainder of her QDRO funds could be rolled into an IRA in her name alone without any tax liability due today. Divorces can be messy, and financial negotiations can make an already heated situation reach a boiling point. We find it is helpful to have someone who understands this process and can guide you. If you have QDRO questions, please schedule a strategy session with us to discuss what your next step should be. We can not only help you receive your QDRO funds but we can help you map out a plan for how much tax you should send to the IRS, how much you need in cash and an investment strategy for the funds you move into your own account through our partner investment firm.

High Stakes, High Net Worth:

January 18, 2023 By Melissa Provence, CDC, DCC

Why hiring a Certified Divorce Financial Analyst can make or break you

By: Melissa Provence CDC,DCC

When it comes to divorce, more than emotion has to come into the equation. High net worth couples can have a particularly difficult time. They have saved all their lives and now face losing a portion of those savings. When it comes to dividing high net worth estates, a highly skilled Certified Divorce Financial Analyst (CDFA) is one of your best lines of defense.

Planning for more than tomorrow:

Oftentimes fiscal decisions are thrown to the wayside due to the emotional effects that divorce can have on a couple. The role of a CDFA is to look at your estate with more than a short-term band aid to get you back on your feet. They work with you during and after your divorce to help you make financial choices when best serve you now and in the future.

Many clients have never dealt with investments like 401K’s, RSU’s, and pension plans. These are complex investments which can greatly impact your retirement. What are the tax implications down the road when dividing the assets awarded to you in your divorce? Does a 50/50 split become a 70/30 split when considering tax effect on your estate? These fact sets are often presented to the client so they can make sound financial decisions. A seasoned CDFA will take an all-encompassing approach to assist you in making wise financial choices.

CDFA’s Role in Your Divorce:

You may be wondering why you wouldn’t just use a financial planner. CDFA’s are often financial planners who also have specialty training and experience working in the divorce financial realm.

CDFA’s will work with you to organize and help you understand your finances. Collecting years of financial data, researching separate property, and division options for the estate.

Let’s not forget parenting after divorce. Who is paying for college? What will child support look like? What about children’s car expenses? These and others are topics a CDFA can review with you, your mediator, and your attorney.

Dissolution of a marriage, not your net worth:

At Divorce Strategies Group, we do divorce differently. Denise French founded the company in 2014 after her own divorce disaster. She had spent a six-figure price tag and a few years of her life trying to close one chapter and begin a new one. After she was divorced, Denise desired to build a company based on creating a better divorce experience. She is highly trained in the areas of high net worth divorces, divorce tax, separate property tracing, executive compensation in divorce, and pension plans. We don’t just facilitate the last stages of the negotiation. We walk with you every step of the way.

To schedule a call…

Why Choose Mediation Instead of Court?

January 10, 2023 By Denise French, CVA, MAFF, CDFA, CRPC

A mediator is a completely neutral third-party expert who assists the parties in coming to their own resolution to a dispute. An effective mediator will have experience both with the process of mediation itself as well as with the specific issues involved in your case.

Why would you choose to use mediation when you could instead use the traditional litigation process for your divorce? There are numerous advantages of mediation over court, and not all of them are obvious at first glance:

(1) Mediation is quicker. Court dates are often postponed or could be inconvenient for the parties involved. In mediation, you get to schedule the time the mediation session occurs, and the process can move much faster than a traditional litigated divorce. At Divorce Strategies Group our mediation process is usually complete within 60-70 days.

(2) In court the judge’s decision is binding. Contrasting, in mediation, you have a say in the outcome and nothing gets decided without your consent. At the end of mediation if an agreement is reached, a Mediated Settlement Agreement (MSA) can be signed which is binding upon the parties. Each party agrees to the conditions and signs voluntarily.

(3) Mediation is typically much cheaper than court. At DSG we charge a flat fee for mediation services and the attorneys we coordinate with typically charge lower rates than they would with traditional litigation. While each party will have competent counsel at DSG in our mediation process, the overall time required by the attorneys in our mediation process is less and therefore the fees are typically less.

(4) Court involves “discovery” procedures where each party forces the other to make information available in advance of the court hearing. Mediation can involve more reasonable and limited information sharing. At DSG, unless otherwise requested, we only ask for what is in the estate currently. In contrast, in litigation often years of statements are requested and then must be reviewed, which takes time and costs money.

(5) You can research potential mediators and select one who has a specific skillset and style that appeals to you. Some mediators are facilitators while others will suggest solutions.

(6) Since the other side has agreed to mediate with you and helps create the settlement, they are more likely to comply with the agreed settlement terms after mediation.

(7) Parents can draft agreements which work for their children instead of following the traditional, cookie-cutter plans of the court system. In our mediation process at DSG, each party discusses their needs and wishes for the children with a family law attorney who then helps the parties craft agreements which both follow the law and fit the family’s needs.

What are the next steps? Schedule a complimentary 30 minute consultation with Divorce Strategies Group to discuss mediation and what options in general may be best for your family.

New Year New You: Three Resolutions Worth Making

December 26, 2022 By Melissa Provence, CDC, DCC

Starting over can seem impossible after divorce. We may have lost who we are, had our future erased, or felt hopeless. The direction of our lives was now completely different. A roadmap once dotted with destinations, now leads to someplace different. Now is the time to recapture and invent your new path. Here are three ways to reclaim and thrive in 2023. Let’s raise a glass and toast to new beginnings!

Rediscover Who You Are:

It can seem impossible to make a fresh start. We don’t know who we are as single adults. This new life can seem overwhelming and scary. Venturing into the unknown can feel like jumping into the abyss. I remember after my own divorce – I had no idea who I was as a single woman. My identity for years was “so and so’s wife”. As the years passed, I slowly lost who I was to who I was supposed to be in the eyes of my ex-husband and those he associated with him. Gaining a title meant losing myself. What I came to realize post-divorce was that there was more to me that being “Mrs. so and so”.

My strategy for doing this was to remind myself who I was prior to marriage and what I wanted for myself. I spent time reflecting on what I loved about myself prior to becoming a wife and cutting out the things that I had been told I needed to let go of once a ring was placed upon my finger. I revisited the times I had thought to myself, “ I wish he could see who I really am”. I had packed away all of the things I treasured most about myself and stuffed that sadness into a secret space within myself.

I made a new vow to myself instead of another person. It was time to rewrite my future. No more compromising my value as a person for the sake of someone else’s expectations. This realization that I could do anything as a single woman, as long as it didn’t conflict with the standards, I set for myself or affect the kind of mother I was. It was incredibly freeing.

I wanted to be a valuable member in the work force. That may not be everyone’s dream, but that was mine. I wanted to garnish a good paycheck and do something that made me feel good about myself and helped others. That is exactly what I found – and then some.

Look Forward to Life

I love to travel and have found that having a trip on the horizon boosts my spirits. It gives me something to be excited about. I may be feeling down or overwhelmed but I can always think about what’s to come and it keeps me moving forward. What do you love to do? Can you use those passions to drive you forward?

Part of the healing process in divorce is to highlight your life with things you love. Self-care is incredibly important during this time period. It can be small things like a good bubble bath and a book, new haircut, having your nails done, or even treating yourself to a nice dinner out with friends. It can also be really big things like moving into a new home, finding a job you’re passionate about, or traveling somewhere you’ve longed to explore all your life.

The world is your oyster! Get excited! Treat yourself to imaging your best life and taking steps to achieve the future you deserve.

Good Grief

Science has proven our brain chemistry is changed during this grieving process. We call it “divorce brain” and it’s very real. You may feel forgetful, overwhelmed, and stuck. Know that this grieving process is very similar to the death of a loved one. While you won’t ever forget this chapter in life, you can move past it.

One of the best and healthiest ways to do this is through the help of a mental health professional. Friends and family are great to vent to but can’t always give you the best advice. Their love for you and anger towards your ex creates a bias that doesn’t always work in your fav

A Divorce Coach is also a wonderful avenue. We can be used in conjunction with a therapist or by ourselves. Divorce Coaches create a safe, judgment free space for you to express all of your thoughts and emotions and help you come up with a plan to guide you through them one step at a time. Divorce coaches are not mental health professionals. We walk client’s step by step through the recovery process and onto a new path that they can be excited about. As a divorce coach, my goal with every client is to address emotion or aspects of life where they feel stuck and lead them into self-discovery.

Make 2023 a defining year in your life. Reinvent who you are and connect with who you were before. Create goals and moments that can inspire you to keep moving forward. Enlist the help of a therapist or counselor to support you in your recovery.

Divorce Strategies Group offers mediation, divorce financial planning, and divorce coaching. If you’re curious about Divorce Coaching and how it can play a part in the healing process, give us a call. We offer complimentary Discovery Session’s to answer questions and briefly touch on topics that are important to you.

Texas Divorce Mediation

December 20, 2022 By Denise French, CVA, MAFF, CDFA, CRPC

A Cost Effective and Expeditious Way to Divorce Amicably

Divorce can be hard on both the divorcing parties’ emotions and their wallets. There is an alternative to traditional divorce litigation which may ease the emotional strain of a divorce and can be more cost effective in comparison to the traditional divorce process. That alternative is mediation. The Texas Bar Association defines mediation as a common dispute resolution method used to facilitate the reaching of an out of court settlement between two parties.

Over the years, mediation has been used increasingly in divorce and custody matters since it permits the parties to make final decisions instead of leaving decisions up to the Texas courts. It also enables parties to handle their divorce in a private environment and create customized plans which fit their needs, not just boiler plate guidelines from the state.

There are multiple benefits to mediation over traditional divorce. First, mediation can avoid a bitter contentious court room battle thereby promoting post-divorce harmony between the parties. Second, mediation may make a divorce easier on children of the marriage. Children often suffer emotionally as the result of a contentious divorce. Third, mediation may expedite a settlement agreement which is preferable to prolonged litigation. Fourth, mediation enables the parties to make the final decisions as to property and custody issues rather than leaving them up to a court. Finally, mediation is praised for its cost effectiveness given that the cost of mediation is considerably less than the cost of traditional divorce litigation.

The process

The actual mediator’s role is to be neutral and not represent either party to the divorce. Mediators are not allowed to give legal or financial advice to either party. A mediator is not acting as a judge nor is the mediator able to dictate any terms to either party. Instead, the mediator’s role is to encourage the parties to reach an agreement by talking through options, considering the strengths and weaknesses of both parties’ cases, the costs of litigation versus the merits of a settlement, etc.

Mediation is not required to produce an agreement. Indeed, in some instances, the parties simply cannot reach an agreement with each other. In that event, traditional divorce litigation is the only realistic option. If an agreement is reached during mediation, the parties will sign a binding written contract that will be enforceable in the Texas courts.

It is a good idea for the divorcing parties to each have their own attorneys who will be present during the actual mediation. This ensures that the parties’ respective interests will be protected during the process as they will have legal advice provided on every offer and option discussed.

Seeking advice

Some mediators are more active in the process than others depending on their personalities. At Divorce Strategies Group we play a very active role in the mediation process. We first meet with both parties to explain the process and confirm both parties are committed to mediation. Next, we gather a list of financial items which enables us to create a martial inventory for the parties. We then meet with each party individually walking through the estate matters and potential division options. This also creates an opportunity to discuss what life will look like after the divorce for each individual – how much will you potentially receive in assets? Where will you be financially? Can you afford to keep the home? What is your tax situation? While we are not giving tax or financial advice, we are providing information to help you make informed decisions. We then bring in a family law attorney for each party to discuss children’s issues including a parenting plan and financial issues with your children. The attorney will also review the estate and potentially offer alternatives or guidance. Each party will have their own attorney who will act as an advocate for them. While the mediator is a neutral party, your attorney is your advocate in the process providing legal counsel and guidance for you.

If you are considering a divorce and wonder if mediation is right for you, schedule a complimentary 30-minute consultation today with Divorce Strategies Group. We encourage you and your spouse to attend the consultation to learn about how this process may help you navigate the waters of divorce in a gentler, softer manner.

What is a Divorce Coach and How Can they Help You?

May 6, 2022 By Melissa Provence, CDC, DCC

[Are you waking up at 3:00 AM, feeling overwhelmed and panicked by the uncertainty of your future?

Questions and worries run through your mind? “Can I afford to get divorced?” “How do I tell my spouse our marriage it’s over?” “What about our kids?” “How do I tell them?” “How will I survive?” “Do I have to share my retirement savings?” “Do I need to lawyer up?” “What lawyer do I hire?”

The questioning can be endless and in a attempt to find answers, you start Googling. Taking the first steps in a divorce can be terrifying and overwhelming. In researching, something pops up about “Divorce Coaching.” Like almost everything else related to divorce, this is a new term for you.

What is a Divorce Coach?

A Divorce Coach is a trained mental health professional who shepherds you through your divorce. Divorce Coaches have unique expertise in divorce, co-parenting, parenting planning, child development, the impact of divorce on children, and all other issues related to divorce. Divorce Coaching is not therapy. Instead, coaches specialize in helping you emotionally cope with divorce before, during and after the process.

Is Divorce Coaching Right for Me?

For most people, the prospect of a divorce is an overwhelming life crisis. You need to make big decisions at a time when you are emotionally overloaded. The demands and decisions can be confusing. Divorce can require the time and energy of a full-time job (when a lot of women already have full time jobs and are full time moms). In the process, it can also be exhausting to get through each day especially when you are meeting with your legal team or financial advisors to discuss divorce related issues. You don’t know what steps you need to take, how you can figure it all out, or how long it will take. If this sounds familiar, then a Divorce Coach can help.

How Can a Coach Help?

A Divorce Coach can help you understand one of the first and most important decisions you will have to make. You will need to decide which of the divorce process options available to you will work best for your family: a do-it-yourself divorce, mediation, collaborative law divorce, or litigation. The process you choose will dramatically affect your outcomes and the process.

A Divorce Coach will walk the path with you, through the legal process you have chosen, to provide support and guidance when needed. Divorce coaches also offer post-divorce support, addressing issues like co-parenting, setting up a spending plan, and claiming your new life.

One of the first and most painful things you will have to do is talk to your children about the upcoming changes in your family. A Divorce Coach will help you (and often your spouse) structure and plan for this, telling your children what they need to know. The Coach will help you respond to their questions and concerns in age-appropriate ways.

A Divorce Coach will help you build or strengthen your skills to cope with your emotions, especially at meetings with professionals and your spouse. In addition, your Coach can help you develop and hold you accountable for implementing much needed self-care practices. This is critical as they can help you feel more grounded and help you cope during this time of life changes.

A Divorce Coach will help you begin to envision your life post-divorce, as a single parent and perhaps going back to work. The Coach will help you set goals and keep you accountable for them. This type of planning may influence your divorce negotiations. For example, if you need re-training to enter the workforce, this can be discussed as part of your divorce settlement.

Coaching will help you develop skills for the negotiations, which usually come after the information-gathering stage. With the help of your Coach, you will be clear about what is important to you in the final resolution. Identifying what matters most to you and where you can compromise is critical in divorce negotiations, and a Coach can help you do this with confidence.

Your Coach will help you understand and think through the many decisions you will be asked to make. A coach can help you feel brave, confident, and articulate in expressing what matters to you without being hijacked by emotions. This makes the process more efficient and cost-effective!

A Divorce Coach can help you build a new kind of parenting partnership relationship with your soon-to-be-ex-spouse. A Coach can work with you to establish good communication, boundaries, and strategies for dealing with issues that inevitably arise.

A Divorce Coach provides a safe space to emotionally let go, vent, breathe and heal.

How Do I Find a Divorce Coach?

At Divorce Strategies Group we offer complimentary Discovery Sessions to discuss you and your situation. This introductory call with Divorce Coach Melissa Provence allows us to learn about you and pinpoint your immediate needs. Let’s talk!