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socrateaser
socrateaser, Lawyer
Category: Family Law
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Experience:  Retired (mostly)
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I was married on 4/2003, date of separation was 4/2009, date

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I was married on 4/2003, date of separation was 4/2009, date of divorce was 5/2013. value of 401k at date of marriage was 60k, value at date of separation was 109k, value at date of divorce was 340k. I have been in plan since 9/1995. the divorce papers state"Voluntary Savings Plan 401(k) shall be divided pursuant to the “time-line” rule " and "The division shall be accomplished by a Domestic Relations Order (DRO), by a mutually agreed and qualified preparer"

I don't quite understand what this means I am afraid that contributions since date of separation are going to be divided
Submitted: 1 year ago.
Category: Family Law
Expert:  socrateaser replied 1 year ago.

Hello,

The "time rule" is a formula whch uses the number of years that a retirement plan participant: (1) is married (not including the time after separation) as a numerator; and (2) contributes to the plan as a denominator; multiplied by the value of the retirement plan at phyisical separation (or judgment of dissolution, whichever occurs first); to determine the amount of community property is present in the retirement plan. Example:

Let S = unmarried time;
Let M = married time;
Let V = value of retirement plan at commencement of distribution;
Let C = community property interest;

Then C = M ÷ (S + M) X V

Using your facts, M = 6. We don't know what the final plan value will be, so we can only guess at V; simiarly, we won't know S, because you are still presumably contributing to the plan. But for purposes of the example, let's say that you are entitled to distribute the retirement benefits now, and you no longer work for the employer. Subtracting 1995 from 2013 (and adding one to account for the first year contributions) means that S + M = 19 (total years of contributions). V = 340,000.

This gives: 6 ÷ (13 + 6) X 340,000 = 107,368.42 is the community property interest in the plan. One half of that amount is what the nonparticipant spouse receives (50% of the community property) = $53,684.21; leaving the participant spouse (that's "you") with the remainder ($340,000 - $53,684.21 = $286,315.79).

Regarding the qualified preparer, very few attorneys can properly prepare a QDRO (Qualified Domestic Relations Order), because they can't handle the accounting details (like I've just done). So, they hire it out to a lawyer who can do the accounting. The QDRO is then sent to the parties to be approved for form, then submitted to the court for approval, and finally sent to the retirement plan administrator to order the distribution per the court order.

Hope this helps.

Customer: replied 1 year ago.


thanks for the reply but I still have a question concerning the contributions made to the account after the date of separation, aren't the contributions separate property? By using the value at judgment the date of the judgment the contributions made to the 401k after the date of separation increase 401k account even though it is money from separate property.


you used 6 ÷ (13 + 6) X 340,000 but why is it not 6 ÷ (9 + 6) X 109,000? then they could use the rate of return for the 401k for the past 4 years to appreciate the separate interest. About 60k of the difference from 109k to 340k is my continued contribution so the other party is getting at least an additional 30k + interest instead of "(1) is married (not including the time after separation) as a numerator (6); and (2) contributes to the plan as a denominator (married 6+ unmarried 9); multiplied by the value of the retirement plan at phyisical separation (109k@2009) (or judgment of dissolution (340k@2013), whichever occurs first) (2009);"

Expert:  socrateaser replied 1 year ago.

You can argue for whatever formula you wish. But, you specifically stated that the paperwork requires the use of the "time-line rule," which I interpret as the erroneous use of the term, "time rule." If so, the formula is as I've described, and no other formula satisfies the requirements of California case law. See, Marriage of Bowen (2001) 91 CA4th 1291, 1295, 111 CR2d 431, 434.

You could file a request for order and ask the court to set aside the judgment on grounds of mutual mistake, due to neither party actually understanding what the term, "time-line rule" meant at the time of judgment. If the judge agrees, then you could revisit the entire matter and argue for a different formula.

 

That's what I would do if I were representing you.

Hope this helps.

Customer: replied 1 year ago.


I haven't tried to argue for another formula, I merely was trying to understand the values you used for SMVC,


6 ÷ (13 + 6) X 340,000


vs


6 ÷ (9 + 6) X 109,000


 


The unmarried time I interpret from date I entered plan till date of the separation and the community interest as the values of the account at date of separation.


 


I read the link to the Bowen case you identified and found this statement that seems to support my understanding:


 


[community property interest in defined contribution plan consists of contributions between date of marriage and date of separation, adjusted for change in value]


 


now that I think about more it would seem that the values would take into consideration the value of the account at date of marriage subtracted from the value at date of separation reducing the 109k to 49k. if the only interpretation is the value of the account at date of judgment for community property then it is what it is the unmarried time would make sense to include time from date of separation to time of judgement


 


 

Expert:  socrateaser replied 1 year ago.
Hello again,

I didn't mean to imply that we were having an argument. I use the term "argue," liberally because that's what lawyers do in their formal pleadings to the court. My apologies for any confusion.

Re the formula and your understanding of the case law, my experience is that the court will simply divide the number of months or years of marriage, but the number of months and years of the participant-employee's contributions, and then multiply that result by the value of the plan at the date of distribution.

The time rule is not the exclusive means by which a court can decide retirement plan distribution rights. It is simply the easiest means, and to be frank, lawyers and judges are generally lousy accountants and mathematicians, so when a rule is made it's almost always simplistic and not as representative of reality as it could be.

A truly accurate accounting would require testimony by an actuary or CPA, so as to determine the exact amount of separate and community property contributions, and to determine what gain or loss, interest or expenses attaches to the various investments in the retirement account.

However, there is a cost-benefit issue here, because the sort of accounting and testimony that I'm describing, will run you at least $10,000-$15,000 in various legal expenses (expert witness and attorney's fees). Which is why parties in a typical marital dissolution generally opt for the time rule.

Please let me know if my answer is helpful to you. The website has been having terrible system failures lately -- consequently many/most customers are not receiving my answers.

Thanks again.
socrateaser, Lawyer
Category: Family Law
Satisfied Customers: 34677
Experience: Retired (mostly)
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