Basic Requirements for a QDRO

A qualified domestic relations order or QDRO for short, is a document that is needed to split certain retirement benefits in the context of a divorce. Specifically, all benefits governed under ERISA (Employee Retirement Income Security Act of 1974) require a QDRO for division. ERISA plans may include pensions, 401Ks, profit-sharing plans, and stock ownership plans. A few examples of plans not governed by ERISA are local state or municipal plans, IRAs, or military benefits. There are certain base requirements for all QDROs. One, you must identify the name and address of both the participant spouse and the alternate payee, or party now standing to receive a portion of the benefits.

Two, you must specify exactly how much the alternate payee is to receive. This can be done a few different ways including as a fixed dollar amount or a percentage of the marital portion of the plan. The marital portion will be determined by looking at the years married in comparison to the total number of years as an employee earning benefits. Third, you need to explain when or how the benefits will be distributed. For many retirement benefits, the alternate payee cannot begin to collect until the participant spouse retires. Finally, the plan must be clearly identified. Certain plans may have specific language they want used or a particular template to file. It is wise to enlist the services of a company that routinely drafts QDROs to ensure the language is correct and all requirements are met.

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Dealing with Pre-Marital Assets

The Divorce Code defines marital property as that acquired from the date of marriage through the date of separation. It may also include the increase in value of property earned prior to the marriage to the extent the increase occurs during the marriage. A popular example of this may be a retirement plan or savings account. With assets or property earned prior to the marriage, it is important to ascertain the value of that property as of the date of marriage to assign that portion to the party who owns it.

The court may determine that an asset that is technically outside the definition of marital property is still up for distribution. This is a possibility for long term marriages such that the longer you are married, the less likely you are able to successfully keep certain assets off the table as being pre-marital. For example, Bucks County has applied a vanishing credit for pre-marital assets. The separate nature of a pre-marital asset is reduced by 5% a year such that there is no longer a credit after 20 years and the entire asset is considered marital.

A prime example of a situation where this rule would be applicable is the purchase of a marital home. Say Spouse A contributed $40,000 of their pre-marital money to the purchase of the house. If the parties separated after 5 years, Spouse A can still claim 75% of the down payment. However, if the parties separate after 20 years, there is no credit back to Spouse A for that initial investment of pre-marital funds.

The rules on credit for individual or pre-marital property can vary county to county since it’s not a statute, but more or less a policy used by the respective Masters when looking at the marital estate in a divorce matter. It is a good idea to be careful about commingling any separate or non-marital property with marital property.

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Informal Probate Administration

Informal administration is where the bulk of the process is by agreement of the interested parties. The notice requirements are still the same. After the short certificate, the executor or administrator needs to notify all possible beneficiaries as well as all possible debtors by publishing notice in the local law reporter and a local newspaper of general circulation. The executor or administrator should notify social security, employer(s), banks, insurance companies, retirement plans, etc. regarding the death of the decedent. The tax returns for the decedent and the estate still need to be completed with applicable taxes paid.

The actual distribution of the estate is by agreement of the parties. All parties should sign a final receipt and release or family settlement agreement. In this instance, it is not necessary to file a formal inventory and accounting with the court. The benefit is there are fewer filing fees and legal fees since less paperwork is filed with the court. Also, there may be more risk of liability on the executor or administrator, specifically if distribution of the estate is occurring prior to the one year mark from notice. It is a good idea to still wait the one year and to also still have an inventory and accounting prepared and presented to the beneficiaries.

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Formal Probate Administration

Formal administration involves handling the entire process through the courts. After the short certificate, the executor or administrator needs to notify all possible beneficiaries. They will also need to notify all possible debtors by publishing notice in the local law reporter as well as a local newspaper of general circulation. The executor or administrator should also notify social security, employer(s), banks, insurance companies, retirement plans, etc. regarding the death of the decedent.

Within three months of the date of death, the executor or administrator should pay estimated taxes on the estate to get a discount. Taxes for the estate will depend on the size of the estate. It is best to underestimate and potentially have to supplement later on than to overpay and risk not being able to get that money back from the government. A federal estate identification number should be obtained. The executor or administrator needs to make sure the final individual tax return for the decedent is prepared and filed in addition to the inheritance tax return. An inventory of the estate should be filed with the court along with a detailed accounting of all expenses of the estate and a proposed distribution of the remainder of the estate to close it out. Distributions should generally not be made until approx. a year after notice to allow creditors to make any valid claims against the estate prior to disbursement.

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Start of Probate Process without a Will

If a loved one has passed away without a will, the laws of intestacy will govern how their estate is handled. The closest kin can apply to the Register of Wills to be designated as the administrator of the estate. They will also be granted a short certificate has proof of their authority to handle the estate.

The administrator would then have the responsibility for identifying all the assets and debts as well as beneficiaries and their contact information and maintaining the estate until final distribution. If the decedent was married and does not have any children or surviving parents, the entire estate goes to their surviving spouse. If there were parents, the first $30,000 goes to the surviving spouse as well as half of the remainder of the estate.

If there are children of the marriage, the first $30,000 goes to the surviving spouse as well as half of the remainder of the estate also. If there are children of the decedent only, the surviving spouse gets half of the estate. The remaining half of the estate, or in the event the decedent is not married, the entire estate, shall pass in the following order: (1) to the decedent’s children; (2) to the decedent’s parents; (3) to the decedent’s siblings or their children; (4) to the decedent’s grandparents; (5) to the decedent’s aunts and uncles and their children and grandchildren. If there are multiple persons in a category, they will each receive equal shares such that a decedent with three children would have the estate separated into thirds.

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Start of Probate Process with a Will

After a loved one has passed, one of the first steps to be taken is to determine if they have a will. If so, you will want to locate the original will and make sure it has been properly signed. Ideally, the will has a self-proving affidavit so that the witnesses to the will do not need to be present when the will goes to probate. If there is not a self-proving affidavit, someone with knowledge of the deceased’s signature would need to verify the signature. In some counties this must be done in person. The named executor will need to go to the Register of Wills with the original will, photo identification, and some method of payment to open the estate.

The Register of Wills will give the executor a short certificate of letters testamentary. This document authorizes the executor to handle the decedent’s estate. The executor will likely need to appear in person at the appropriate county office throughout the probate process. For this reason, it makes sense to name an executor that lives in the area. You should also be careful if selecting co-executors as they need to agree on how to proceed. The executor should identify all the assets and debts as well as beneficiaries and their contact information. Real property should be secured and maintained, including keeping up with any mortgage, homeowners insurance and taxes in the interim.

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