Specificity And Its Importance To The Family Law Practitioner

Whether or not a contract is enforceable often hinges on a single word. So it is true for Family Law attorneys. The settlement agreement or final decree has to reflect exactly what has been agreed to by the parties or ordered by the judge. Yet, too often, attorneys will use “boiler plate” language that does not address the actual assets being distributed when dealing with retirement benefits. These documents are contracts that have been either agreed upon by the parties, or ordained by a judge, and should reflect the same specificity as any other legal contract if they are to be enforceable as intended. The attorney has to be familiar with the retirement plan in order to craft language that addresses the particular plan assets being distributed. The attorney has to be sure that the language used results in the settlement intended by the parties.

There are hundreds of thousands of retirement plans in the country and each has its own provisions for the payment of benefits. Many, if not most, pension plans have generous early, supplemented benefit options to reward employees with long tenure. Most defined contribution plans (401(k)’s, ESOP’s, Retirement Savings Plans, etc.) will pay out the funds awarded to an alternate payee immediately upon approval of a domestic relations order, but some won’t. Unless you have familiarized yourself with the specific provisions of the plan being addressed, you can not be specific as to the assets you intend to distribute.

Survivor benefits are an important part of every pension plan and provide a lifetime income for the spouse in the event of the pre or post-retirement death of the participant. In order to fund these benefits the actual pension is reduced (usually about 10%). Yet many of the requests we receive to prepare domestic relations orders are silent as to how this valuable asset is to be handled. If the settlement agreement or final decree is silent then there is no distribution of the survivor benefits which, in the theory behind the law making retirement benefits a part of the marital estate, both parties were working to acquire throughout the marriage. The pension is supposed to provide security to both in their older years. It is possible to pay the pension on an actuarial basis, thereby giving the spouse an income for life, but the reductions necessary to do so make this asset practically worthless. I have explained in previous newsletters how the actuarial calculations required to pay the benefit on an actuarial basis result in severely devaluing the payments to the alternate payee. Even if you practice in a State that requires that only the benefit accrued up to the marital property cut-off date be included in the distribution, you can still award a portion of the survivor benefits in your settlement. In reality, this is the only equitable thing to do as they are an integral part of the asset being distributed.

Many settlement agreements have language stating the non-participant spouse is awarded 50% of the marital portion of the 401(k) or other defined contribution retirement plan accrued up to the marital property accrual cut-off date. That is o.k. (but inadequate - see next paragraph) if the participant commenced participation in the plan after the date of marriage but if he or she was enrolled in the plan prior to the date of marriage, that language is worthless. The plan will not compute the marital portion. If all the quarterly statements from the date of the marriage to the present are available, a growth analysis appraisal can be made and the marital portion identified. If not, then there either has to be a coverture calculation made (account balance X 50% X a fraction. The fraction being determined by dividing total number of months married, up to the marital property cut-off date, while the participant was in the plan by the total number of months the participant was in the plan) or the parties have to agree upon the amount to be distributed. In any event, the language awarding 50% of the marital portion is totally inadequate.

Whether or not the parties were married during the total period of participation in the plan, you still have a problem that is created by lack of specificity.  It is assumed that the alternate payee is the owner of his or her share of the account from the marital property cut-off date forward and is entitled to any passive growth that has accrued on that portion up to the date of the actual distribution of the funds. Some plans will compute that amount for you but many won’t. You will have to check with the plan to see if they will compute the present value of the alternate payee’s share of the account on the date of distribution. If they won’t, you will either have to get the account statements from the cut-off date to the present and compute the passive growth and project another month or so to allow for processing of the order. Alternatively, the parties have to agree upon some figure or % to use to bring the account up to the value to be distributed. You can not simply say “50% of the marital portion” without being more specific. If there is a long period of time between the cut-off date and the distribution, the amount of passive growth can be substantial.

Time and space constraints only allow me to touch on a couple of examples where the lack of specificity can cause problems for the attorney. In the area of retirement benefits there are myriad others. In particular, dealing with the valuation and distribution of defined benefit assets (pensions) is fraught with the absolute need for specificity. The one thing that is obvious is that the attorneys must familiarize themselves with the workings of the plan being addressed or have an outside consultant draft the settlement language to be sure that nothing is overlooked.

As we begin a new year, a good resolution might be to always contact the retirement plan and get the plan documents before beginning the settlement process. Adding this step to the processing of your future cases where retirement assets are an issue would be a good start to becoming more specific in your handling of these cases.

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RETIREMENT ASSET RELEASE FORM

I, ________________________________________, do hereby instruct a representative of
(Plan Participant - printed)

____________________________________________________________________________
(Name – address – phone # of benefits provider)
_____________________________________________________________________________

to cooperate fully with ___________________________________________________________
(Name of attorney - address - phone #)

_________________________________________________ or his/her designee and answer any and all questions relating to my pension plan or any other retirement or deferred income plans in which I participate. I also request that you furnish this individual a current plan booklet and a current accrued benefits statement, and a statement as of ___________________________,
(Marital Property Cut-off Date)

of all of my accrued retirement benefits including any defined contribution, defined benefit or deferred compensation plans in which I am a participant. The defined benefit plan statements should detail the accrued vested benefit payable to me on my normal retirement date along with a statement of projected pension benefits, including supplemental benefits, if any, payable to me on the earliest date that I may receive them on an actuarially unreduced basis (based on my current income) assuming continued employment to that date. If my benefit is contingent upon my classification or job level or contribution level please so state and advise what that may be. Also, please provide a statement showing my service computation date (first day of employment), dates of all breaks in service (if any), my current salary and my annual salary for the past five years, the legal names of the plans in which I participate and their addresses and the name, address and telephone number of the person to be contacted if additional information is needed. I authorize that person to answer all questions incident to this request. The defined contribution plan statements should show my current plan balances as well as my account balances on

____________________________ and on ____________________________.
(Marital Property Cut-off Date)                              (Date of Marriage)

_________________________________________ ______________________________
Signature of Plan Participant                                                Today's Date

_____________________________________ __________________________
Date of Birth                                                                   Social Security #

______________________________                       ___________________________
Witness # 1 - Signature                                                  Witness # 2 - Signature

______________________________                        ___________________________
Witness # 1 - printed                                                       Witness # 2 – printed