Sunday, January 27, 2013

WHAT HAPPENS WHEN YOUR DO NOT GET YOUR PENSION QDRO FILED?

QUESTION : HYPOTHETICAL QUESTION ISSUE DOES NOT INVOLVE A CURRENT OR PREVIOUS CLIENT- Divorced May 2012 in judgement of divorce a 401(k ) was to be divided. The company is requiring a QDRO in order to begin the division of funds.

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By Terry R. Bankert [trb] terry@attorneybankert.com
www.attorneybankert.com , https://www.facebook.com/attorneybankert, Flint Divorce & Bankruptcy 810-235-1970


The husband the original holder of the 401k submitted two QDRO’s but each has been returned as they were not within the acceptable guidelines.

The ex-spouse asks Is there a time limitation for the lawyer to submit this QDRO to the company? She would also like to know what is it for the state of Mich. and what are the consequences for not complying with this time limit.

RESPONSE:

THERE ARE A LEAST TWO PROBLEMS .AFTER SIX YEARS THE TRANSFER OF THE 401(K) WILL NOT BE PRESUMED TO BE NON TAXABLE. THE HUSBAND MAY HAVE DIED AND THE 401(K) DISPERSED OTHERWISE.

Retirement benefits are often the largest single asset in a divorce. Michigan law requires every judgment of divorce (or separate maintenance) to determine the rights, including contingent rights, of the parties to (1) any vested pension, annuity, or retirement benefits; (2) any accumulated contributions in any pension, annuity, or retirement system; and (3) any unvested pension, annuity, or retirement benefits. MCL 552.101(4). [2]

Your Pensions earned during a marriage are marital property subject to division. [1] This division of retirement or pension plans can be divided using qualified domestic relations order (QDRO) procedures. [1]

The QDRO rules In Michigan apply to private tax-qualified pension, profit-sharing, and stock bonus plans, including defined benefit pension plans, 401(k) plans, most 403(b) plans and 457 plans, money purchase pension plans, cash balance plans, and employee stock ownership plans (ESOPs). [2]

A Michigan state court domestic relations order (DRO) that is a QDRO within the meaning of IRC 414(p) and 29 USC 1056(d)(3) must be honored by retirement plans that are subject to ERISA. If a DRO is a QDRO, the qualified plan may pay benefits to a former spouse or another alternate payee in accordance with the terms of the order without violating the antialienation rule. It is this exception to the antialienation rule that allows state courts the ability to divide and reallocate retirement benefits in domestic relations actions.[2]

A Domestic Relations DRO may be a judgment, decree, or order made pursuant to a state domestic relations or community property law that relates to the provision of child support, alimony, or the property rights of a spouse, former spouse, child, or other dependent of a plan participant (referred to as an alternate payee). To be a QDRO, the DRO must, among other requirements, specify (1) the name and mailing address of the plan participant and each alternate payee, (2) the amount or percentage of the participant’s benefit to be paid to each alternate payee or how it is to be determined, (3) the number of payments or the period to which the order applies, and (4) the identity of each plan to which the order applies.[2]

The general rule of IRC 1041 is that transfers of property between spouses or former spouses incident to divorce are not taxable. This provision applies not only to transfers at divorce but after as well, provided the transfers are incident to the divorce.[3]
  • Six-year presumption. Transfers made pursuant to divorce documents within six years of divorce are presumed incident to divorce and not taxable
  • After six years. The reverse presumption—that transfers after six years are not incident to divorce and asre taxable —may be rebutted by presenting evidence to the contrary.
The nontaxable treatment applies to transfers of cash or property, the surrender of marital property rights, and the assumption of liabilities. It does not apply to assignments of income such as an accrued bonus or a right to income from rental property (unless ownership of the rental property itself is also transferred). This is the reason QDROs and EDROs are necessary to transfer pensions tax free.[]3]

Property settlement. Attorneys should also consider the tax consequences of transferring property between divorcing spouses. Generally, no gain or loss is recognized on transfers of property between spouses (or former spouses) incident to divorce—that is, transfers that occur within one year after the marriage is terminated or, if beyond a year, are nonetheless related to the cessation of the marriage.[4]

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[source]

[1]
Information for Clients in a Divorce Case,Contributed by Thomas L. Saxe,
ICLE ,11/11

[2]
Michigan Family Law ch 16 (Hon. Marilyn J. Kelly et al eds, ICLE 7th ed 2011), at
http://www.icle.org/modules/books/chapter.aspx?lib=family&book=2011553510&chapter=16
(last updated 01/18/2013).

[3]
Michigan Family Law Benchbook ch 9 (ICLE 2d ed 2006), at
http://www.icle.org/modules/books/chapter.aspx?lib=family&book=2006553550&chapter=09
(last updated 01/18/2013).

[4]
Michigan Family Law ch 18 (Hon. Marilyn J. Kelly et al eds, ICLE 7th ed 2011), at http://www.icle.org/modules/books/chapter.aspx?lib=family&book=2011553510&chapter=18
(last updated 01/18/2013).
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Thursday, January 10, 2013

Your questions in Chapter 13 Bankruptcy by Flint Bankrutpcy Attorney Terry Bankert 235-1970


Your bankruptcy case number is very important! This is how the Bankruptcy Court and the Trustee’s office identify your specific case. You will need to put this number on all payments made directly to the P.O. Box in Memphis, TN. It will also be required if you contact the Trustee’s office with questions regarding your case, or if you would like to view your case information online.
If a neighbor, friend, family member, girlfriend, boyfriend, roommate, etc. calls the Trustee’s office and requests information regarding your case, we cannot give them information without your written authorization.
All the creditors listed in your Chapter 13 Plan have been sent a notice advising them of the filing of your bankruptcy case. They are subject to an Automatic Stay Order, which requires the halt of all collection activity on pre-bankruptcy debts. In the event that you are contacted, do not discuss your debt, but instead, give them your Chapter 13 case number and the name of your attorney. Get the name of the person contacting you and report it to your attorney.
Your first payment is due within 30 days after your bankruptcy is filed. Failure to make your first payment within 30 days of filing will result in the Trustee’s office filing a motion to dismiss your case. Please discuss all payment instructions with your attorney.
Payments to the Trustee are used to pay your attorney, Trustee fees, and your creditors. Creditors fall into three basic categories: secured, priority, and unsecured. Generally, the Trustee makes monthly payments to the secured and priority creditors first. After these creditors are paid in full, your payments are then divided among the unsecured creditors. Unsecured creditors may not receive payments for many months or even years.
If you experience a short paycheck/short pay period, you still need to make your full payment. Contact your attorney. They will advise you of your legal options – with your attorney’s help we may be in a position to assist you.
Payments are due even if you are on vacation, laid off or on sick leave. In the event that you can’t make the required payment, please contact the Trustee’s office immediately and make arrangements to pay “something” directly, until you return to work. Please keep records of any partial payments and upon return to work you will need to remit extra payments in addition to regular payments to cure the default. Also, contact your attorney. They will advise you of your legal options.
If payments are missed, it is possible that your expected completion date will change. Please keep records of any missed payments and remit extra payments in addition to regular payments to cure the default. NOTE: You cannot complete your Plan as originally proposed if you do not make all of your payments into the Plan!!
If you have a little extra money, DO NOT use it to pay creditors directly if they are to be paid by the Trustee. Contact your attorney to discuss your options – this office will continue to pay all of your creditors as court ordered unless otherwise informed in writing by either the creditor or attorney.
If you receive a bonus check, vacation check or a tax refund and a deduction or the whole check/amount has been remitted to the Trustee’s office to fund your Chapter 13 Plan- READ YOUR PLAN AND PAY ORDER – to find out if the deduction was correct. The Trustee has a duty to collect all funds and apply them to the plan unless there is an exception. All receipts are disbursed regularly. If a payment was received incorrectly, please notify the Trustee’s office immediately.
Only your attorney is to contact the Trustee’s office in writing to request payoff information. THE PAYOFF AMOUNT CHANGES WITH EVERY DISBURSEMENT. Please contact your attorney so that he/she can help you to determine if this is in your best interest.
It may not be in your best interest to pay off your case early. Contact your attorney to discuss your options.
The Plan will not work if payments are not received. If you have an interruption in employment, please contact the Trustee’s office. Keeping the Trustee informed can possibly avoid a motion to dismiss. However, creditors may still file motions if your payments are behind. Contact your attorney to discuss your options.
The Trustee will provide you with information on your Chapter 13 Plan and payments. You will receive an annual report in the mail and you can view your case information at any time online.
If you are entitled to a check from the Trustee’s office, you may NOT come pick it up in person. We mail all payments.
You must keep your attorney and the Chapter 13 Trustee’s office informed in writing of address changes. This information is not only useful for notices, but also to make sure that any checks payable to you are sent to the correct address.
Every debt you owe, contingent or disputed (business or individual), must be listed in your plan. All debts must be paid through the Trustee’s office unless there is justification stated in the Plan. If you have debts that you did not list, contact your attorney.
In order to be paid, creditors must file a proof of claim after receiving notice of your Chapter 13 filing. Unsecured creditors are allowed 90 days from the date of the first meeting of creditors (341 meeting) to file their claims. Governmental agencies have 180 days from the filing date of your petition to file a claim. If they fail to do so, they most likely will not receive payments into the plan.
Several months after the filing of your case, you will receive a document called the Report on Timely Filed Claims. This document lists all of the creditors in your plan and discloses whether or not a claim has been filed. Carefully check the listing for accuracy. CONTACT YOUR ATTORNEY IF ANY OF THE CREDITORS OR CLAIM AMOUNTS APPEAR INACCURATE.
If you have received a shut off notice, explore assistance from your church, charitable agencies, and contact your attorney. The Trustee cannot respond unless your attorney takes legal steps.
If you need repairs on your vehicle or home, contact your attorney and they will discuss your options.
All of your disposable income is considered part of your bankruptcy estate and must be committed to the Plan for the first 36 months. You cannot buy any major purchase without first obtaining the Trustee’s permission. This includes refinancing. Your attorney must submit the appropriate paperwork asking the Trustee to consider your request.
All of your property is considered part of your bankruptcy estate. You cannot sell any major part of the estate, including but not limited to: your home, car, land, fine art, or jewelry without the permission of the Court. Your attorney must submit the appropriate paperwork asking the Court to consider your request.
Any use of credit or credit cards, or entering into a loan agreement of any kind is prohibited by the Court. This applies to any family member that you support, even though they are not a party to your Chapter 13.
In emergency circumstances or if a unique need for credit use arises, contact your attorney to submit a Motion to Incur Debt which the Trustee will take into consideration. The Trustee will decide if the request has merit and is affordable. Pursuing credit without the Trustee’s permission may jeopardize your Chapter 13 case and could lead to dismissal.
If your Chapter 13 Plan includes a tax escrow to pay future property taxes while you are in bankruptcy, you will need to mail all tax bills to the Trustee’s office for payment at 400 N. Saginaw St., Suite 331, Flint, MI 48502. Be sure to include your name and case number on the bill. DO NOT mail them to your attorney’s office first.
The Trustee and his staff cannot give legal advice.
Your attorney is your best source of information. If you have questions, contact your attorney.
If you feel that your attorney is not providing adequate service and/or they are totally inaccessible, you always have the option of hiring a different attorney.
A case may be converted to a Chapter 7 voluntarily.A letter will be sent from our office to the employer and/or you (debtor) with directions to extinguish the payroll deduction, ACH or to direct you to stop personally paying. A close code has been entered in your case. This code directs our system to reject any further payments received after the conversion and to refund any payments received back to the debtor. Bear in mind it sometimes takes approximately 4 to 6 weeks for some employers to extinguish a deduction.
Any funds received prior to conversion are disbursed to your creditors pursuant to your confirmed plan.
A case may be dismissed either voluntarily, meaning that you decide to stop your participation in the plan, or involuntarily, meaning the Court has terminated your plan usually because of failure to maintain timely payments. If your case was dismissed, all creditor stays will be lifted and creditors may resume recovery procedures on accounts and may add any interest and penalties that were waived under your Chapter 13 Plan.
A letter will be sent from our office to the employer and/or you (debtor) with directions to extinguish the payroll deduction, ACH or to direct you to stop personally paying. A close code has been entered in your case. This code directs our system to reject any further payments received after the dismissal and to refund any payments received back to the debtor. Bear in mind it sometimes takes approximately 4 to 6 weeks for some employers to extinguish a deduction.
Any funds received prior to the dismissal are disbursed to your creditors pursuant to your confirmed plan.
Congratulations, you have successfully completed your Chapter 13 Plan. Your case has been audited and an Order is being entered with the U.S. Bankruptcy Court to extinguish the payroll deduction, ACH or direct you to stop personally paying. This Order is served to you (debtor), your attorney and your employer. A close code has been entered in your case. This code directs our system to reject any further payments received after the completion code has been entered and refund the payments back to you as the payments are received. It takes approximately 4 to 6 weeks for some employers to extinguish a deduction.
The final disbursement will take place on the 1st of the month following completion. After the final disbursement has taken place, a Notice of Completion is sent to you (debtor), your attorney and all your creditors. It instructs all parties that they have 30 days to respond. If they disagree to you receiving your Discharge, they are to file an objection with the U.S. Bankruptcy Court. After the 30 days expire, the U.S. Bankruptcy Court will issue your Discharge. Bear in mind that although you are financially completed you are still legally protected by the bankruptcy until you receive your Discharge. You may not buy or sell any items until you receive your Discharge. The time between completion and Discharge is approximately 2 to 3 months.
If this office was paying your mortgage payment, you will receive a letter from us directing you to start making your mortgage payment. We will indicate what month you are to start and the amount you are to start paying. You will need to mail your payments directly to the mortgage creditor according to the letter you receive. The mortgage creditor will not set up automatic payment until after you receive your Discharge.
Unique debts contained in your plan that cannot be discharged upon completion include student loans, child support obligations, and fines created as a result of your causing injury while under the influence of drugs or alcohol. You will be responsible for any balances due on debts of these types after the completion of your plan.
If your unsecured creditors did not receive the entire amount originally owed to them, all remaining balances will be “discharged” or legally forgiven upon the completion of your plan. Creditors cannot resume collection activity on these debts.
When a creditor has been paid in full through the plan, the creditor may upon your request, send the “paid in full” papers to you. Court records will officially show your plan was paid in full according to its terms and will overrule any claim the creditor might make for additional money from you. Should you receive a request for additional money after your plan completes, review the matter with your attorney.
Your Chapter 13 bankruptcy will be reflected on your credit report for ten years after the petition was filed with the Court.
A final report and account must be submitted to the Court for auditing before your case can be closed. Auditing usually takes four to six weeks. You will receive a copy itemizing all money transactions, receipts, claims filed, and amounts of disbursements. You will receive an Order of Discharge from the Bankruptcy Clerk and a copy of your Final Report. Your creditors will receive notice that the final report was filed. These are very important documents that you should keep in a safe place indefinitely.

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