1040 name-statusIt’s always nice to see a court cut through the red tape and do the right thing. It doesn’t always work out that way. Here it did.

In its April 29, 2015 decision in Dickson v. Dickson, the Appellate Division, Second Department, reversed Westchester County Supreme Court Justice John P. Colangelo to solve a practical problem resulting from a mistaken assumption in a couple’s divorce settlement agreement.

That agreement provided that the wife would receive one half of the husband’s Time Warner Deferred Compensation Plan benefits. The transfer of the wife’s interest was expressly to be effectuated pursuant to a Qualified Domestic Relations Order (hereinafter QDRO) or a Domestic Relations Order (hereinafter DRO).

What is a Domestic Relations Order? It is common for employers to provide retirement or deferred compensation benefits to their employees. With appropriate plans, there are no income taxes paid by the employee now at time of the employer’s current contributions. Indeed, the employee may also contribute to such plans using “pre-tax” dollars. Income taxes will not be paid on the employer’s or employee’s contributions, or the growth thereon, until the employee withdraws funds from the plan, usually upon retirement.

Incident to a divorce, a share of such plan benefits is often to be paid over, now, to the employee’s spouse. Were that to be accomplished by the employee withdrawing the spouse’s share and paying over the funds withdrawn to the spouse, such could constitute a current invasion of the plan, a withdrawal from the fund subjecting the employee, now, to income taxes, if not early withdrawal penalties, as well.

A Domestic Relations Order is a court decree recognized by the Internal Revenue Service that allows the division of retirement plan benefits incident to a divorce, without triggering current income taxation or early withdrawal penalties. Rather, the employee’s spouse will be subjected to income taxes only when the spouse accesses that share when, as and if withdrawals are made (or if the share is not properly rolled over into an appropriate tax-deferred account of the spouse).

That is precisely what the Dicksons contemplated here. The wife was to receive half of the husband’s Time Warner Deferred Compensation Plan. A Domestic Relations Order was to be used to prevent the transfer to the wife being a taxable event. Rather, the wife would pay income taxes on the amounts she received when, as and if she did so.

However, in this instance the Time Warner Deferred Compensation Plan was not the type of benefit plan that could be made the subject of a Domestic Relations Order. Instead, for the husband to pay over to the wife her 50% share, such would be treated as a current invasion. The husband would, now, be subjected to income taxes on the amount withdrawn and paid over to the wife.

Continue Reading Divorce Agreement Reformed Where DRO Not Available To Divide Deferred Compensation Plan

An ex-wife’s failure to obtain a Domestic Relations Order during her ex-husband’s lifetime did not bar relief after his death. The divorce settlement agreement provision that granted her the right to receive the ex-husband’s retirement plan death benefits could be enforced after his death more than seven years after the divorce judgment was entered.

Suchwas the holding of New York County Supreme Court Justice Debra A. James, in the August, 2013 decision in Paschall v. New York City Employees Retirement System.

After 20 years of marriage, Diana and Randy Paschall were divorced. Their 2004 divorce judgment incorporated the terms of their surviving 2003 Settlement Agreement.

By the time of his death in 2011, Mr. Paschall  had married again to Jewel Paschall. Jewel was issued letters of administration for Randy’s estate. She also exercised her personal right of election to take her elective share of her late husband’s estate pursuant to New York Estates, Powers & Trust Law 5-1.1-A.

During his  marriage to Diana, Mr. Paschall accrued benefits under the New York City Employees’ Retirement System (NYCERS). Diana and Randy’s divorce Settlement Agreement provided that in the event of Randy’s death before Diana, Diana would be entitled to Randy’s survivor annuity. The Agreement required Randy to designate Diana as his death benefit beneficiary.

Randy never designated Diana as his death benefit beneficiary. No Domestic Relations Order was ever entered by which Diana’s entitlement was ordered, nor was NYCERS otherwise notified of Diana’s entitlement before Randy’s death. Indeed, in 2009, Randy had designated his children as beneficiaries of his death benefit.

Here, Diana had sued Jewell and NYCERS, itself, seeking to enforce the Settlement Agreement insofar as it gave her rights to receive Randy’s retirement system death benefit.

Continue Reading Ex-Wife's Failure to Obtain DRO Before Ex-Husband's Death Not a Bar to Recovery of Retirement Plan Death Benefits

Retirement Plan.jpgAfter 36 years of family law practice, I pride myself on having a good idea of what I don’t know.

The good news is that I can reach out for the help needed to make sure the bases are covered when drafting a divorce settlement agreement.  Matrimonial litigation has spawned a host of forensic specialities