1. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 1
Contra Costa
LAWYERVolume 27, Number 2 | March 2014
Family Law
Tax Update
The Tax Edition
Tax Avoiders Beware:
Disclosure of Foreign Assets
Held By U.S. Taxpayers
Underway
Procedural Considerations
for Submitting an OIC:
Anderson v. Commissioner

2. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 9
CCCBA MeMBer
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The Problem of the Missing QDRO
C
lients often consult with a family law attorney
requesting modification or enforcement of some
aspect of their dissolution judgment. They may
ask for help with changes in spousal support, for
a court order for sale of the family home after the kids
leave, or enforcement of child support payments. No
surprise there.
But what is surprising is the number of post-dissolu-
tion clients who have never had a Qualified Domestic
Relations Order (QDRO) prepared on their behalf.
The amount of money left on the table after a di-
vorce can be staggering. Routinely, clients are awarded
$50,000 to $100,000 (or more) in retirement plan assets
in the property settlement. But regrettably, many never
claim a penny.
The client may not understand, for example, that a
lifetime pension was theirs for the taking. Or they mis-
takenly assume that because the nest egg is identified in
the judgment, a pension check will inevitably be sent to
them when they reach age 65. So they wait, sometimes
five, 10, even 20 years after the divorce, without ever
having a QDRO drafted.
Usually the QDRO can be issued without incident.
But a fateful few may be devastated to find that their
long-forgotten former spouse has (unlawfully) taken
and spent all the retirement assets awarded in the an-
cient judgment. Unfortunately, by the time the misap-
propriation is discovered, the wrongdoing spouse may
be penniless or dead.
A Complex Area of Law
How does the problem of the pretermitted QDRO
arise? To be honest, it is very complicated to draft a
QDRO, have it approved by the retirement plan’s ad-
ministrator and opposing counsel, get it signed by both
the parties and the judge, and finally be able to get some
money out of the plan.
The body of law relating to retirement plans is com-
plex and byzantine. To further confuse the unwary
practitioner, the US Tax Code (Internal Revenue Code of
1986, as amended, 26 U.S.C. §1 et seq. (Code)) and the Em-
ployee Retirement Income Security Act of 1974 (ERISA)
are often duplicative of each other.1
As a result of this
duplication, there are two sets of virtually identical
QDRO rules—one set in ERISA section 206(d)(3)(B)(i) and
the other in Code section 414(p)(1)(A).
In addition to the Code and ERISA, there are at least
40 other acts that also affect retirement plans. If the em-
ployer violates any of these rules, they face the draco-
nian threat of plan disqualification. If that happens, the
employer and employee may be forced to pay ordinary
income tax on the money in the plan accounts.
The Department of Labor’s (DOL) Employee Benefits
Security Administration (EBSA) provides guidance on
ERISA, generally, and QDROs, spe-
cifically. The DOL’s guidance ma-
terials can be found at http://www.
dol.gov/ebsa/publications/. Both the
DOL and Treasury (i.e., IRS) regula-
tions must be complied with for a
QDRO to hold water.
Getting the Facts
Because the family’s biggest as-
sets may be their employee benefit
plans, family law attorneys must
determine what these benefits are
worth. This information cannot be
overlooked! Given all of the above-
by Rita A. Holder

3. MARCH 201410
ment benefits after the judgment or final decree is en-
tered.
The next step is drafting the QDRO. First, contact the
plan administrator to get a copy of the plan’s model
QDRO, if available, and written QDRO procedures. If a
model QDRO is not available, the attorney will need to
draft the language of the QDRO on their own. The ad-
ministrator of the plan is the arbiter of all things QDRO.
In a defined benefit plan, the question of survivor bene-
fits must be considered—for both the employee and the
non-employee.
If the non-employee is awarded a portion of the em-
ployee’s account balance in a defined contribution plan,
the non-employee’s spouse’s attorney will need to pro-
tect the spouse’s interest in case he or she dies before
benefits are distributed. Any attorney who decides to
prepare a QDRO without consulting the plan adminis-
trator does so at his or her own peril.
Next, even if the attorney is using the model QDRO
format from the administrator, it is the best practice to
prepare a draft for the administrator’s review and that of
opposing counsel. Any problems identified by the plan
administrator or counsel can be ironed out before the or-
der is presented to the judge. The plan administrator can
still reject the QDRO as not meeting employer require-
ments, even though the judge has already signed it!
Taxation of the Distribution
If the QDRO passes the muster of the plan administra-
tor and is signed by the court, it is then sent back to the
plan administrator. In due course, a distribution from
the qualified retirement plan will be made to the non-
employee spouse (the “alternate payee”) either in cash
or a defined benefit stream of payments.
Invariably, the alternate payee will be disappointed to
find that the distribution is subject to a 20 percent man-
datory income tax withholding. To avoid this manda-
tory withholding, the alternate payee has 60 days to roll
over the QDRO distribution as per Code sections 402(c),
402(e)(1)(B) and 3405. The 10 percent early distribution
penalty does not apply to distributions made pursuant
to a QDRO.2
The IRS’ “Special Tax Notice Regarding Plan Pay-
ments,” which will be sent to the alternate payee, is
quite informative. It can be downloaded from the IRS’
website at www.irs.gov, or by calling 1-800-TAX-FORMS.
Practitioners should note that even if the client receives
bad tax or legal advice regarding a QDRO rollover, the
transaction cannot be undone and will not qualify for
deferred tax treatment.3
California has mandatory state income tax withhold-
ing of 10 percent of the federal income tax withheld—
unless the taxpayer elects to opt out of withholding (CA
Form DE4P). Like the Feds, there is no California state
income tax withheld if the QDRO distribution is rolled
Missing QDRO,
cont. from page 9
mentioned complexity in the law, this can be a chal-
lenge. Attorneys may find that clients have little knowl-
edge as to the type, or value, of the couple’s retirement
plans. In some cases, the assistance of ERISA counsel
may be advisable.
Most employers will provide general information
aboutplanbenefits,ifaskedbythespouseorthespouse’s
attorney. If the client is uncertain as to their spouse’s
retirement plan benefit, and is unable to obtain them
from the employer, the attorney should identify them
through the use of interrogatories, requests for produc-
tion of documents, or subpoena duces tecum issued to
the plan’s administrator.
In addition, remember to find out if the spouse main-
tains an Individual Retirement Account (IRA), so that it
too may be included in the property settlement. Be sure
toaskforaccountstatementsandrecentpensionestimates.
Retirement benefits will be either traditional “de-
fined benefit” pension plans, funded entirely by the
employer, or defined contribution plans, such as 401(k)
plans, often funded by a combination of employee and
employer contributions. Once you find out what kind
of plan the client or the spouse participates in, the next
task is to find out how much that employee benefit plan
is worth in actual dollars.
In a surprising number of situations, the employee-
spouse keeps, or gives up, their entire pension without
the client or the attorney knowing exactly how much it
was worth. Seek expert help if there is any question in
this area.
In order to value the defined benefit plan assets, it is
often advisable to engage the services of an actuarial
firm on your client’s behalf. The actuary can be a matter
for stipulation, or the court can be asked to make a deci-
sion as to the actuary to be engaged. An actuarial valua-
tion can cost anywhere from $500 and up. However, this
is money well spent, and can be split between the par-
ties. Once the actuary values the retirement plan assets
of the parties, informed negotiations can begin.
Preparing the QDRO Document
When the parties reach agreement on the community
property division, the Marital Settlement Agreement
(MSA) or Stipulated Judgment can be drafted, incorpo-
rating precise language that describes the manner in
which the retirement plans are to be divided.
Attorneys are often understandably confused, believ-
ing that once the retirement plan assets are identified,
discussed and divided in the judgment or the MSA, that
should be the end of it. Unfortunately, this is not true.
There is another essential step in the division of retire-

4. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 11
directly into an IRA or another qual-
ified plan. The 2½ percent state pre-
mature distribution penalty does not
apply to distributions pursuant to
divorce.
Many post-dissolution clients have
never had a QDRO prepared on their
behalf. This may be due to the fact that
the body of law relating to retirement
plan QDRO is full of twists and turns.
Unlike case law, tax law does not
hold much wiggle room. Practitioners
should pay close attention to the Code
and ERISA requirements when draft-
ing a QDRO. s
1
ERISA is found at 29 U.S.C. Ch. 18 et seq.
2
Code § 72(t)(2)(C).
3
Mills v. Commissioner, T.C. 2003-41.
Rita A. Holder maintains a law
practice in Walnut Creek, special-
izing in family law and ERISA. For
over 30 years, she has advised many
companies, large and small, about
ERISA issues and QDRO procedures.
Rita holds an LL.M. in Tax/ERISA.
rita@ritaholderlaw.com.
Northern California
Mediator / Arbitrator
18 years as Mediator
27 years as Arbitrator
35 years in Civil Practice
Roger F. Allen
510.832-7770
Ericksen, Arbuthnot
155 Grand Avenue, Suite 1050
Oakland, CA 94612
rallen@ericksenarbuthnot.com
• Training includes Mediation Course at
Pepperdine University 1995
• Serving on Kaiser Medical Malpractice
Neutral Arbitrators Panel
• Settlement Commissioner, Alameda and
Contra Costa Counties
• Experienced in all areas of Tort Litigation,
including injury, property damage, fire loss,
malpractice, construction defect