Author Topic: What type of professional do I need for this legal/financial advice?  (Read 5439 times)

Spork

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Let me try to describe this situation as succinctly as I can...

I received an unexpected offer from a past employer in regards to a pension plan.  The offer is very short term turnaround.  In a nutshell:
* receive a lump sum (significant amount of money... not enough to change your life forever, but darn significant).  This option comes with multiple choice options each with their own tax implications.  A) take it all B) Roll to traditional IRA C) Roll to Roth D) almost any combination of the above in almost any percentage

* receive a couple of hundred bucks a month for life...

* receive it as a monthly sum at various ages in "retirement".  They give WAG's on amounts and boldly tell you they don't know exactly what it will be.  I.e. Market dependent.

the complication:
It clearly states (for pretty much any of the options) that if there is an ex-spouse involved they may or may not be legally entitled to some of the money.  I worked at this company almost 20 years (only 5 of which I was married to an ex).  I remarried and a much larger portion of that time the current spouse clearly has some entitlement to.  I've been through my divorce decree (I am not even close to being a lawyer) and see no mention of the plan (though a few other company plans *are* mentioned and handled).

Bottom line:
I want to do the right thing (legally) and I want to do the right thing (for my financial interests).

What sort of attorney/advisor should I be seeking?  Family law?  Estate planning?  General practice? 
How do I vet these guys *really damn fast*?  I've never used an attorney (other than for my divorce).  I want it right... but I don't think I need some $5000/hour guy.   

mpbaker22

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Re: What type of professional do I need for this legal/financial advice?
« Reply #1 on: January 21, 2014, 01:07:25 PM »
I don't have suggestions on who to talk to.

I would say that your ex-spouse is entitled to at least 1/2 of 1/4 of the money, probably legally.  She might be morally entitled to more than that depending on the situation.

MissStache

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Re: What type of professional do I need for this legal/financial advice?
« Reply #2 on: January 21, 2014, 01:14:47 PM »
Why don't you call up your divorce lawyer?  They have some familiarity with your situation and should certainly be well-versed in this kind of thing.

Another Reader

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Re: What type of professional do I need for this legal/financial advice?
« Reply #3 on: January 21, 2014, 01:18:36 PM »
The person that handled the divorce would be where I would start.  Can you think of any reason this account was not mentioned in the divorce documents?  Did you possibly trade something else for 100 percent ownership if this account?

Without more information on the pension option, it's hard to say what I would do in your shoes.  My inclination would be to roll it over into a traditional IRA, but there are a lot of caveats to that.

Spork

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Re: What type of professional do I need for this legal/financial advice?
« Reply #4 on: January 21, 2014, 01:19:12 PM »
Why don't you call up your divorce lawyer?  They have some familiarity with your situation and should certainly be well-versed in this kind of thing.

Well, that's a possibility... but... I've moved away.   And we're talking 20+ years ago.
« Last Edit: January 21, 2014, 04:56:30 PM by Spork »

tat96

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Re: What type of professional do I need for this legal/financial advice?
« Reply #5 on: January 21, 2014, 02:12:35 PM »
I would get in touch with your lawyer from your divorce (since he/she is most familiar with your settlement/agreement) and go from there.  Each state is different with regards to how much and at what percentage ex-wife's are entitled to when it comes to pensions (issues can range from communal property to how arbitrary a judge decides to be that day).  I know of cases where former spouses have been dragged back into court because an ex-wife wants a renegotiated settlement due to past/current earnings that were not part of the original settlement.  Naturally, you should address it with a divorce lawyer so that you can cover yourself if an when your ex finds out you are receiving a pension.  Even the perception of hiding assets from a divorce case can quickly turn to accusations of fraud. 

If your former lawyer is no longer available I would find a good divorce/family practice attorney.  I have no idea how to vet them other than to check with the State Bar or read online reviews.  You should be able to get a free 30 minute consult to address your case before you decide to move forward. 

Oh, and be careful with this unknown amount of money.  As an accountant I would freak out if someone came into my office wanting advice pertaining to a pension like you describe.  You don't know the exact amount and have several ways to draw it and it is dependent on market rates......  This is hard to value and you may get stuck giving your ex a much bigger percentage than you realize in a settlement because you aren't really aware of the true (possibly lower) value of your pension.  Be careful!!!!!  Maybe figure out how you are going to draw it and how much it is worth before reaching any settlement.

Lastly, a CPA (who does taxes!!!) should be able to handle your tax situation with regards to an IRA, etc.  A

kkbmustang

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Re: What type of professional do I need for this legal/financial advice?
« Reply #6 on: January 21, 2014, 06:22:59 PM »
Did you have a Qualified Domestic Relations Order approved as part of the divorce decree. Those are required under ERISA (Employee Retirement Income Security Act). The employer sponsoring the pension plan should have a copy of it so they know how to distribute benefits. The family/divorce lawyer should have sent a Domestic Relations Order to the company who should have then had it reviewed and approved as a QDRO.

Daleth

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Re: What type of professional do I need for this legal/financial advice?
« Reply #7 on: January 21, 2014, 06:37:02 PM »

Let me try to describe this situation as succinctly as I can...

I received an unexpected offer from a past employer in regards to a pension plan.  The offer is very short term turnaround.  In a nutshell:
* receive a lump sum (significant amount of money... not enough to change your life forever, but darn significant).  This option comes with multiple choice options each with their own tax implications.  A) take it all B) Roll to traditional IRA C) Roll to Roth D) almost any combination of the above in almost any percentage

* receive a couple of hundred bucks a month for life...

* receive it as a monthly sum at various ages in "retirement".  They give WAG's on amounts and boldly tell you they don't know exactly what it will be.  I.e. Market dependent.

the complication:
It clearly states (for pretty much any of the options) that if there is an ex-spouse involved they may or may not be legally entitled to some of the money.  I worked at this company almost 20 years (only 5 of which I was married to an ex).  I remarried and a much larger portion of that time the current spouse clearly has some entitlement to.  I've been through my divorce decree (I am not even close to being a lawyer) and see no mention of the plan (though a few other company plans *are* mentioned and handled).

Bottom line:
I want to do the right thing (legally) and I want to do the right thing (for my financial interests).

What sort of attorney/advisor should I be seeking?  Family law?  Estate planning?  General practice? 
How do I vet these guys *really damn fast*?  I've never used an attorney (other than for my divorce).  I want it right... but I don't think I need some $5000/hour guy.

For the tax questions you should see a highly qualified tax preparer (like a lawyer/accountant with their own firm... not some streetcorner H&R Block type place).

For the ex-wife questions, a divorce lawyer--not necessarily the one who handled your divorce, though that might be best if it wasn't eons ago (i.e. if it's recent-ish enough that the lawyer may still remember it).

Spork

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Re: What type of professional do I need for this legal/financial advice?
« Reply #8 on: January 21, 2014, 06:48:31 PM »
Did you have a Qualified Domestic Relations Order approved as part of the divorce decree. Those are required under ERISA (Employee Retirement Income Security Act). The employer sponsoring the pension plan should have a copy of it so they know how to distribute benefits. The family/divorce lawyer should have sent a Domestic Relations Order to the company who should have then had it reviewed and approved as a QDRO.

The short answer is: Yes.  And yes, a copy was filed with that employer.

...but the QDRO did not refer to the pension plan.  Hell, it's been 20+ years.  I may not have even realized it was there.

Saverocity

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Re: What type of professional do I need for this legal/financial advice?
« Reply #9 on: January 21, 2014, 08:12:50 PM »
Additionally, if you can get past the hurdle of the ex wife you need to look at the lump sum payment, depending on its structure it can sometimes be better to take it out into a taxable account under the net unrealized appreciation rule- you need a lawyer and a planner if this is substantial.
« Last Edit: January 21, 2014, 08:18:45 PM by Saverocity »

Spork

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Re: What type of professional do I need for this legal/financial advice?
« Reply #10 on: January 22, 2014, 07:25:27 AM »
Additionally, if you can get past the hurdle of the ex wife you need to look at the lump sum payment, depending on its structure it can sometimes be better to take it out into a taxable account under the net unrealized appreciation rule- you need a lawyer and a planner if this is substantial.

This was my gut feeling, too.  If I read the literature, they word it as if they've tried to structure all the options based on exactly the same base amount (the amount currently put away in the pension.)   There is also some value to "the known."  If this money is sitting in a Vanguard account I already own vs. sitting in "some randomly picked plan administrator's" account -- I have control and knowledge that it is unlikely to vaporize and disappear.   I don't have any real mistrust for ex-employer or their minions... but stuff happens.  You never know what they'll be like in another 15-20 years.

The ex-wife thing is a PITA... but it's probably a relatively simple/inexpensive question for a decent lawyer.  I sort of hate that it is an issue, but I would rather payout some small fraction now than face some lawsuit (with possible punitive penalties for my negligence) later.   And: as much as we're "not really friends" -- I think it's the right thing to do.

Saverocity

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Re: What type of professional do I need for this legal/financial advice?
« Reply #11 on: January 22, 2014, 08:05:28 AM »
Additionally, if you can get past the hurdle of the ex wife you need to look at the lump sum payment, depending on its structure it can sometimes be better to take it out into a taxable account under the net unrealized appreciation rule- you need a lawyer and a planner if this is substantial.

This was my gut feeling, too.  If I read the literature, they word it as if they've tried to structure all the options based on exactly the same base amount (the amount currently put away in the pension.)   There is also some value to "the known."  If this money is sitting in a Vanguard account I already own vs. sitting in "some randomly picked plan administrator's" account -- I have control and knowledge that it is unlikely to vaporize and disappear.   I don't have any real mistrust for ex-employer or their minions... but stuff happens.  You never know what they'll be like in another 15-20 years.

The ex-wife thing is a PITA... but it's probably a relatively simple/inexpensive question for a decent lawyer.  I sort of hate that it is an issue, but I would rather payout some small fraction now than face some lawsuit (with possible punitive penalties for my negligence) later.   And: as much as we're "not really friends" -- I think it's the right thing to do.

Yep, can't help you with the ex, but for the lump sum Vanguard taxable account may be better than IRA or Roth... depending on the structure.

Spork

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Re: What type of professional do I need for this legal/financial advice?
« Reply #12 on: January 22, 2014, 08:16:53 AM »
Additionally, if you can get past the hurdle of the ex wife you need to look at the lump sum payment, depending on its structure it can sometimes be better to take it out into a taxable account under the net unrealized appreciation rule- you need a lawyer and a planner if this is substantial.

This was my gut feeling, too.  If I read the literature, they word it as if they've tried to structure all the options based on exactly the same base amount (the amount currently put away in the pension.)   There is also some value to "the known."  If this money is sitting in a Vanguard account I already own vs. sitting in "some randomly picked plan administrator's" account -- I have control and knowledge that it is unlikely to vaporize and disappear.   I don't have any real mistrust for ex-employer or their minions... but stuff happens.  You never know what they'll be like in another 15-20 years.

The ex-wife thing is a PITA... but it's probably a relatively simple/inexpensive question for a decent lawyer.  I sort of hate that it is an issue, but I would rather payout some small fraction now than face some lawsuit (with possible punitive penalties for my negligence) later.   And: as much as we're "not really friends" -- I think it's the right thing to do.

Yep, can't help you with the ex, but for the lump sum Vanguard taxable account may be better than IRA or Roth... depending on the structure.

Somehow I missed the taxable on your first reply (and I am glad you repeated it).   My gut was also to take it into the Roth and pay whatever taxes that implied...   but I can totally see how taking it fully taxed could be an advantage -- especially since I am probably 1-3 years from FIRE. 

I seriously need to have a CPA (or some sort of financial guy) run some numbers.  I'm normally totally DIY in this regard, but my time is very short here.

Saverocity

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Re: What type of professional do I need for this legal/financial advice?
« Reply #13 on: January 22, 2014, 08:37:39 AM »
Additionally, if you can get past the hurdle of the ex wife you need to look at the lump sum payment, depending on its structure it can sometimes be better to take it out into a taxable account under the net unrealized appreciation rule- you need a lawyer and a planner if this is substantial.

This was my gut feeling, too.  If I read the literature, they word it as if they've tried to structure all the options based on exactly the same base amount (the amount currently put away in the pension.)   There is also some value to "the known."  If this money is sitting in a Vanguard account I already own vs. sitting in "some randomly picked plan administrator's" account -- I have control and knowledge that it is unlikely to vaporize and disappear.   I don't have any real mistrust for ex-employer or their minions... but stuff happens.  You never know what they'll be like in another 15-20 years.

The ex-wife thing is a PITA... but it's probably a relatively simple/inexpensive question for a decent lawyer.  I sort of hate that it is an issue, but I would rather payout some small fraction now than face some lawsuit (with possible punitive penalties for my negligence) later.   And: as much as we're "not really friends" -- I think it's the right thing to do.

Yep, can't help you with the ex, but for the lump sum Vanguard taxable account may be better than IRA or Roth... depending on the structure.

Somehow I missed the taxable on your first reply (and I am glad you repeated it).   My gut was also to take it into the Roth and pay whatever taxes that implied...   but I can totally see how taking it fully taxed could be an advantage -- especially since I am probably 1-3 years from FIRE. 

I seriously need to have a CPA (or some sort of financial guy) run some numbers.  I'm normally totally DIY in this regard, but my time is very short here.

Yep, worth it.  Point out this rule to them too and see if it applies.  I just worked through it on a case for someone retiring early and it was surprisingly good for them.  Here is an example I wrote up about how it works, I use 401K but it can apply to other profit sharing plans that offer lump sums.  It is typically about own company stock to which it applies (not sure if that is your case or not?) but frequently when late issue lump sum payments are offered, as in your case it is related to this.

Here is a short post I wrote on it.

http://saverocity.com/finance/taking-early-401k-distribution-can-savvy-move-net-unrealized-appreciation-tax-rule/

Going into ROTHS directly (and leveraging NUA rules) has been closed off now since 2009 the IRS found out about the loophole http://www.irs.gov/pub/irs-drop/notice_2009-75.pdf

In essence the NUA rule allows you to pay income tax on the BASIS not the VALUE of the plan - which if it is an old one from back in the day that has appreciated over time might make a big impact to you.  The difference between basis and present value will still be taxable, but you can pay it at Cap Gains rates rather than income rates.

Theory is that if you roll over you into a Trad IRA you will eventually be withdrawing at Income Tax levels, though if your FIRE plan is created with a low annual outflow it might be smarter to pay at Ordinary Tax rather than Cap Gains (Long Term) rates. 

So, there are a few moving parts, but at least now you can bring it up with a finance guy to see if it might make sense - a lot of people aren't aware of this rule so it is good to know about in your planning process.

Spork

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Re: What type of professional do I need for this legal/financial advice?
« Reply #14 on: January 22, 2014, 08:45:28 AM »
In essence the NUA rule allows you to pay income tax on the BASIS not the VALUE of the plan - which if it is an old one from back in the day that has appreciated over time might make a big impact to you.  The difference between basis and present value will still be taxable, but you can pay it at Cap Gains rates rather than income rates.

Um.  Wow.  That would be awesome.  Using the basis would almost surely be the best way (if possible) as this has been "dead" from a contribution standpoint for ... god, I can't remember... 11 years?

Saverocity

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Re: What type of professional do I need for this legal/financial advice?
« Reply #15 on: January 22, 2014, 09:10:18 AM »
In essence the NUA rule allows you to pay income tax on the BASIS not the VALUE of the plan - which if it is an old one from back in the day that has appreciated over time might make a big impact to you.  The difference between basis and present value will still be taxable, but you can pay it at Cap Gains rates rather than income rates.

Um.  Wow.  That would be awesome.  Using the basis would almost surely be the best way (if possible) as this has been "dead" from a contribution standpoint for ... god, I can't remember... 11 years?

You pay Ordinary Tax on the basis (plus likely a 10% penalty on the basis) and you do still have to pay Cap Gains on the gain.  It could be amazing, or it could be meh - works best for people who have a decent level of retirement income already and therefore the IRA distribution would be in higher bracket, but it could still work for you.

Requires a little modeling and a chat with a Pro.  Just trying to point you in the right direction with it as a concept.

Cheers,

Matt

Spork

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Re: What type of professional do I need for this legal/financial advice?
« Reply #16 on: January 22, 2014, 09:18:34 AM »

Saverocity: that is *extremely* helpful!  Just for final clarification: is this a financial planner question?  Or a CPA question?  Or both? 

I'm already accepting the fact I need a family lawyer for at least a consultation.  I'm just trying to sort out how many other folks I need to bring in.

Saverocity

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Re: What type of professional do I need for this legal/financial advice?
« Reply #17 on: January 22, 2014, 09:22:11 AM »

Saverocity: that is *extremely* helpful!  Just for final clarification: is this a financial planner question?  Or a CPA question?  Or both? 

I'm already accepting the fact I need a family lawyer for at least a consultation.  I'm just trying to sort out how many other folks I need to bring in.

It is more of a planner question.  A CPA-PFS designation might be a good option; these are CPAs with extra training in Planning.