Would you be able to explain this language from a QDRO? I am not sure if my ex has taken out loans on the plan after signing our separation agreement. Would this be possible?
“This Order assigns to the alternate payee an amount equal to $xxxx of the participant’s
Vested Account Balance under the Plan (identified in Section 1) as of the liquidation date.
If the amount assigned to the alternate payee exceeds the full vested value of the
participant’s account (less the amount of any outstanding loans, prior distributions, or
account losses) as of the valuation date preceding the liquidation date, the order will be
denied.”
Valuation Date—The Valuation Date is the date on which the participant’s Vested
Account Balance will be valued in order to determine the alternate payee’s designated
portion in accordance with the terms of this order. Accounts are valued on a daily basis.
Liquidation Date—The liquidation date is the date the amount assigned to the alternate
payee is transferred from the participant’s Vested Account Balance to a separate account
established for the alternate payee in accordance with the terms of the QDRO. An
assignment as of the liquidation date assigns a portion of the participant’s current Vested
Account Balance.
Your spouse could have taken out a loan on the account after signing the separation agreement but if there were not enough funds to pay to you what is required in the separation agreement, he could be in breach of contract.
The language you cite is likely required QDRO language for that particular Plan. It’s saying that if there is not enough of the vest funds to pay to you what is required when it comes time to pay it to you, then the Plan will not honor the transfer as set forth in the QDRO.
Anna Ayscue
Attorney with Rosen Law Firm Cary • Chapel Hill • Durham • Raleigh • Wake Forest
Rosen Online | Unlimited confidential access to a North Carolina attorney for $199/mo - click here
The response posted above is based upon the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with an attorney, fully explain your situation, and allow the attorney sufficient opportunity to research the applicable law and facts required to render an accurate opinion. The basic information provided above is intended as a public service only, a full discussion with an attorney should be undertaken before taking any action. The information posted on this forum is available for public viewing and is not intended to create an attorney client relationship with any individual. These answers are provided for informational purposes only, a person should consult with their own individual legal counsel before taking any action that could affect their legal rights or obligations.
“The alternate payee shall be eligible to receive payment as soon as administratively
reasonable following the determination that this order is a Qualified Domestic Relations
Order. In no event can the alternate payee begin his or her benefit later than April 1
following the year in which the participant attains age 70½.”
Question: Why does the alternate payee benefit depends on the participants age?
Taxation:
For purposes of Sections 402 and 72 of the Code, any alternate payee who is the spouse or former spouse of the participant shall be treated as the distributee of any distributions or payments made to the alternate payee under the terms of the order and, as such, will be required to pay the appropriate federal, state, and local income taxes on such distributions.
Question: The plan was a 401K. Does this mean the alternate payee pays taxes as soon as they put the money in the account?
The benefits probably depend on the age that the participant can start withdrawing funds without penalty.
401(k) money that is transferred from one spouse to another via a QDRO incident to divorce is not taxed on the transfer itself. You would not be taxed as soon as you get the money. Rather, you would be taxed whenever you withdrew the funds sometime after you receive them.
Anna Ayscue
Attorney with Rosen Law Firm Cary • Chapel Hill • Durham • Raleigh • Wake Forest
Rosen Online | Unlimited confidential access to a North Carolina attorney for $199/mo - click here
The response posted above is based upon the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with an attorney, fully explain your situation, and allow the attorney sufficient opportunity to research the applicable law and facts required to render an accurate opinion. The basic information provided above is intended as a public service only, a full discussion with an attorney should be undertaken before taking any action. The information posted on this forum is available for public viewing and is not intended to create an attorney client relationship with any individual. These answers are provided for informational purposes only, a person should consult with their own individual legal counsel before taking any action that could affect their legal rights or obligations.