QDRO strategy for 401k split

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QDRO strategy for 401k split

Postby tstretch » Wed May 23, 2012 10:21 pm

My soon to be ex and I just finished mediation yesterday and signed the Marriage Settlement Agreement. In it, it states:
    "Wife shall receive the sum of $19,000 as equitable distribution to be transferred to her IRA or 401k."
Further in the paragraph it states:
    "That if necessary, the husband shall obtain a QDRO to complete said transfer and bear any costs involved."

I plan/hope to be able to do the QDRO myself through my employer's HR dept. We are a pretty big company and have a template that I fill out and if they approve it, they say that typically the 401k plan administrator (Merrill Lynch) will approve it too. Since this is a simple lump sum payment, I figure I can get it done without having to pay someone to draft the QDRO.
1st question: Is doing it myself a dumb move?

Now, there is no mention whatsoever of an "as of" date in the MSA. But the template I have to fill out requires a date. So what date would be most financially advantageous for me to use? The date she filed for divorce (which was late Aug 2011 and then my 401k balance was $69K) or the date of the divorce which will be early June of this year (and recently my balance has been hovering around $89k (about $20k more). Since the divorce filing August date, I have continued to contribute a good bit to the 401k, my employer has contributed their match for the year, and the market has also improved... Hence the 30% increase in the balance

So 2nd Question: How do I calculate which date would be better for me to use?

(And btw for those who care, my wife got every single thing she asked for at mediation so I'm not trying to screw her over, just keep what I'm able to legally...)
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Re: QDRO strategy for 401k split

Postby Trevor » Wed May 23, 2012 10:36 pm

1. If the DIY approach keeps you from paying early-distribution penalties, fees, and taxes, and provides solid documentation to the court that you have complied with the transfer within the timeline and terms, then save yourself the QDRO expense...though I am not sure how much one costs. Use your brokerage to make sure every T is crossed and every I dotted before it gets submitted.

2. If the orders have you trasnferring a fixed dollar amount, the only difference the date would make would be the value of your account on the day of the transaction and the number of shares that $19k would buy.

3. (And btw the fact that your X got everything she wanted at mediation shouldn't be one your talking points.) How'd you do with your custody split?
"Personal density is directly proportional to temporal bandwidth."
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Re: QDRO strategy for 401k split

Postby tstretch » Wed May 23, 2012 11:03 pm

Thank you so much for the info Trevor. However, I'm not sure I follow this:

Trevor wrote:2. If the orders have you trasnferring a fixed dollar amount, the only difference the date would make would be the value of your account on the day of the transaction and the number of shares that $19k would buy.
Do you mean that regardless of the date I use, I'm still only going to see a reduction of my account balance by $19k?
Because the template has mention of "including losses and gains", which is what confuses me.. Does that mean if I use a date of Aug 2011, but my account has grown, I will see more than a decrease of $19k because of some of total balance was actually gains owned by my ex (gains that occurred between the Aug date and the date of divorce)? If thats the case, it seems using the latest date possible is most advantageous..??

Trevor wrote:3. (And btw the fact that your X got everything she wanted at mediation shouldn't be one your talking points.) How'd you do with your custody split?

My fault. Custody is 50/50 so thats good but the schedule isn't what i was hoping for..

Thanks again Trevor!
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Re: QDRO strategy for 401k split

Postby Trevor » Wed May 23, 2012 11:50 pm

Yes. If your orders state you owe a fixed dollar amount, it's gonna be $19k to your X whether your account value is $20k or $120k. Otherwise orders would have stated a certain percentage of your account or a certain number of shares, both cases in which your concern about valuation date is relevant. Be clear on what is in your orders.

This part is my understanding; it may not be the way it works in your case; this is from my possible QDRO (never executed) more than 7 years ago. Your brokerage firm will know the correct answer. Leverage their expertise.

I think the form phrase ""including losses and gains" means there may be a small fluctuation in the exact amount transferred because typically securities are divided into shares, and when ordered to tranfer a dollar amount, they must sell a certain number of shares (including fractions of shares) in order to realize that dollar amount. Because share values are very fluid, the value of sold shares at the exact moment of transfer may not end up at exactly $19k. For example if they had to sell 650 shares of your security at $29.23 per share, the total would be $1899.50. If the value changed between the sell order and its actual execution to $29.22 per share, the transfer amount would be $7 short.
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Re: QDRO strategy for 401k split

Postby tstretch » Thu May 24, 2012 6:41 am

That makes sense. Thanks so much again!
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Re: QDRO strategy for 401k split

Postby hoosier_dad » Thu May 24, 2012 7:05 am

I'll have to dig out my QDRO for an example, but I agree on the dollars vs. shares argument. Her opportunity to request a split of shares based on legal separation date passed during mediation, requesting a split of a specific dollar amount makes it much easier.

But the date is still important as there will be gains/losses as the QDRO process usually takes 1-3 months to complete. But I'm not sure what date they usually use, the final decree date or the QDRO filing date. I'll have to check on mine.

This timeline might help with your planning, this came from my attorney's office back in 2010 when I executed my QDRO:

(1) we obtain a signed Decree
(2) we contact employer/401k administrator and obtain their rules, regulations and forms for QDROs (nothing stopping you from doing this earlier)
(3) we draft a proposed QDRO using their form PLUS required language per your settlement
(4) we submit the QDRO to employer/401k administrator for approval
(5) we submit the APPROVED QDRO to opposing counsel; we submit the APPROVED QDRO (approved by employer and OC) to the Court for Judge’s approval and signature
(6) we receive an approved, fully executed file-marked QDRO from the Court and send a runner to the Court to obtain a “certified copy” of the QDRO
(7) we send certified copy of QDRO to employer/401k administrator for distribution.
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Re: QDRO strategy for 401k split

Postby tstretch » Thu May 24, 2012 7:36 am

Wow - also super helpful Hoosier! Thanks!
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Re: QDRO strategy for 401k split

Postby splittinginaz » Thu May 24, 2012 11:12 am

Having just completed my QDRO i will give you my input.
The dollar amount settlement is fairly strait forward but the date of agreement is also important.
If your divorce is not completed can you have the date of the agreement put in to the document for you to put on the QDRO? Otherwise I believe it is the date of the final divorce paperwork.

The difference of this date is once the QDRO paperwork is complete the administrator will take the dollar amount plus or minus any gains from that date. So her amount may be more or less the agreed upon amount.
Hope this help.
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