QDRO MALPRACTICE IN A VOLATILE MARKET-David T. Ruegg’s COVID-19 Suggested Best Practices


All-
I want to take a moment to highlight some of the things I worry about-in terms of exposure of liability for the family law attorneys I work with and care about in these changing times. 
The following topics are in this email.  Skip around to those you want to read (or read it all or skip it all):

THE SPECIFIC DOLLAR AWARD ERROR-NOT GOOD TO BE LOOSE WITH YOUR DESCRIPTIONS IN ‘MARKET FLUX’ TIMES 

SEPARATE PROPERTY TRACINGS-ABSOLUTELY ESSENTIAL IN ‘MARKET FLUX’ TIMES

EQUALIZATIONS-DON’T DO IT IN ‘MARKET FLUX’ TIMES 

TECHNOLOGY-I THINK YOU NEED TO ACCEPT IT-DON’T FIGHT EVOLUTION, YOU WILL LOSE

Under Technology-I break down what I use at my office to stay successful. With links to direct your research in case you want to adopt one of my techniques.


Best of luck to everyone out there-and my apologies for the annoying ‘away message’ you all received this past week from me.  I look forward to getting back on the phones and emails next week. 


-david ruegg

THE SPECIFIC DOLLAR AWARD ERROR-NOT GOOD TO BE LOOSE WITH YOUR DESCRIPTIONS IN ‘MARKET FLUX’ TIMES

“Respondent is awarded $25,000 via QDRO from Petitioner’s 401(k) Plan, payable via QDRO.”

The problem with the above format is twofold-it lacks direction on the inclusion or exclusion of gains/losses and it lacks specificity regarding a valuation date. 

On the market fluctuation (gains/losses) point, the question becomes: Is the $25,000 award supposed to adjust for market fluctuation of the underlying investments or not?  401(k)s and other defined contribution accounts are invested in stocks, bonds, mutual funds, and other investment vehicles that fluctuate daily with the rise and fall of the stock market.  Is the intent that the $25,000 should be the exact amount down to the penny that should be leaving the retirement account at the date of transfer? OR was the intent that the $25,000 should ride the waves of market fluctuation?  A QDRO attorney is not a judicial officer, and so the QDRO attorney should not be ‘ruling’ on this question.

The second layer of complexity with the above language is the valuation date.  Let’s assume for a moment the Parties have agreed the $25,000 should fluctuate with the market.  That’s might be great progress for Parties who do not always get along, but now the question becomes: from what date should the gains/losses be tracked?  From date of separation?  From the judgment entry date? From the date the Parties calculated the ‘specific dollar’ award?  Each date will cause a different mathematical result-which leads to problems when the date is not specified in the judgment.

Unfortunately for the QDRO attorney trying to problem solve these situations, case law is not settled on this quandary.

From the 4th Appellate District, 3rd Division, In Re Marriage of Heggie (2002) 99 Cal.App.4th 28, 120, Cal.Rptr.2d 272 discusses a ‘specific dollar’ award from Husband to Wife, to equalize the values of their respective IRA accounts.  After entry of judgment, Husband’s IRA account sharply increases over a short period, while miscommunications between the Parties prevents the IRA funds transfer from finalizing.  Attempting to ‘re-equalize’ at the higher values, Wife requests a set aside of the judgment.  The Heggie Court found that a set aside request based on subsequent circumstances casing the division of assets and liabilities to become inequitable, was not sufficient grounds for set aside under Family Code 2123.  The Court stated that Wife’s strategy of “wait-and-see, have-your-settlement-and-set-it-aside-too-if-stock-prices-go-up position” would be an unfair result.  The Court ruled that Wife only could have her specific dollar award, without market appreciation.

The Heggie ruling is contrasted with the 4th Appellate District, 2nd Division case, In Re Marriage of Janes (2017) 11 Cal. App. 5th 1043 (Cal. Ct. App. 2017), which also deals with a ‘specific dollar’ award. In Janes, Wife received a specific dollar award from Husband’s 401(k), and then a delay of over four years occurs before the QDRO is pursued.  Similar to the facts of Heggie, in Janes the underlying account investments in Husband’s account increased in value over the 4 year passage of time, and Wife requested a share of those gains.  The Court in Janes concluded Wife was entitled to a proportional share of the gains in the underlying investments.  The Court pointed out that no valuation date was specified in the judgment for the specific dollar award, and no directions regarding inclusion/exclusion of gains and losses was specified.  Due to the lack of direction in the judgment, the Court concluded Wife’s ‘specific dollar interest’ was vested as of date of the judgment (the valuation date), and Wife’s investments fluctuated with the market inside Husband’s account (gains and losses were included).  The Janes Court directs that absent a specific valuation date and instructions on gains/losses, the valuation date shall be the date of entry of judgment and gains/losses will be included from the date of judgment to the date of account division. 

Since the Janes and the Heggie cases are out of different Appellate divisions, they are both good law.  It seems the distinguishing factor between the two cases is the passage of time between the judgment date and the account division date.  To avoid an unnecessary analysis of the Janes and Heggie cases in a Court hearing, counsel should specify inclusion/exclusion of gains and losses and a valuation date for any ‘specific dollar’ award in the judgment.
I think now-more than ever-family law attorney need to be CAREFUL about drafting settlement agreements that include a ‘fix dollar award’ from a retirement account.  
In re Marriage of Heggie (2002) https://law.justia.com/cases/california/court-of-appeal/4th/99/28.html

IN RE: the Marriage of MISTI and TIM JANES (2017) https://caselaw.findlaw.com/ca-court-of-appeal/1861665.html


SEPARATE PROPERTY TRACINGS-ABSOLUTELY ESSENTIAL IN ‘MARKET FLUX’ TIMES


I think it’s malpractice to not do separate property tracing if you are going to ‘trade’ retirement accounts for other assets instead of doing a QDRO.  With market swings of 30% and huge volatility-how can you not analyze how much money your clients have in their retirement accounts if you are planning on doing some ‘old fashioned family law horse trading’ of spousal support buyouts, buyouts of the family residence, ect.   Malpractice.  There is no other way to describe making a blind trade like that right now. 
Time to call up your favorite forensic CPAs.  I personally have my own ‘in house’ CPAs-David Prenovost, Michael Prenovost, and Karen Sandoval-who handle all mine and they can be reached at cpa@qdrodivision.com

EQUALIZATIONS-DON’T DO IT IN ‘MARKET FLUX’ TIMES

Whenever you combine and equalize accounts-what you are doing is mathematically saying that $1 in investments in one account is equal to $1 in investments in the other account-which is mathematically inaccurate-the degree to the inaccuracy depends on the investments, but one party will be ‘shorted’ on the investment gains and the other party will receive a ‘windfall’.  Here is a fake example:
Wife has an account worth $50,000 as of date of separation
Husband has an account worth $100,000 as of date of separation
To “save on fees” they agree not to QDRO both accounts, but to instead award wife 25% of husband’s account (Thinking both parties will end up “equal” with $75,000, each).
At the time of the QDRO division a year has passed and Wife’s account performed at a 10% market rate  (current value $55,000) and Husband’s account performed at a 20% market rate (Current value $120,000).  Neither party contributed or withdrew funds.
Wife receives her 25% interest in husband’s account, as promised, and receives $30,000 from the $120,000 in investments
The end result is:
Wife now has $85,000
Husband now has $90,000
If both accounts were QDRO-ed individually, the additional QDRO fee would be about $750 ($375 each) and both parties would receive $87,500.
End result: Wife saved $375 on 1/2 the QDRO fees and lost $2,500 in market appreciation. (and husband saved $375 on QDRO fees and received a windfall of $2,500-a total inequity between both awards when added together of $5,000)
Obviously-I’m biased as a QDRO attorney, but that doesn’t mean I’m wrong.  Be careful equalizing accounts-the larger the accounts and the more varied investments between the accounts, the larger the “error factor” will be compared to dividing the accounts separately by ‘standard QDRO’ (which provides an accurate community split of not only the underlying investments as of separation, but also the proportional gains/losses).

TECHNOLOGY-I THINK YOU NEED TO ACCEPT IT-DON’T FIGHT EVOLUTION, YOU WILL LOSE

While I think it’s ‘easy’ to self rationalize yourself into thinking ‘this corona virus thing is all temporary and we will get back to normal soon’ I think it’s the wrong mentality.  Governor Newsom just issued an Executive Order on Judicial Council Emergency Authority https://www.gov.ca.gov/2020/03/27/governor-newsom-issues-executive-order-on-judicial-council-emergency-authority/  This order will allow many of the ‘flood gates’ of technology to enter our space very very quickly and you are either going to embrace this evolution and thrive or fight it and become extinct. 
I think when we are FORCED to do things outside our comfort zone and they WORK we ADAPT and EVOLVE into the ‘new normal’ and we are better and provide our clients better services as a result.  We have been doing this slowly every day…but every once in awhile…we are forced to ‘leap head’ fast.   Video conferencing, electronic signatures and transmission of documents-this is no longer emerging technologies in the legal space-it has just arrived and it’s here to stay and if you try to fight it-I think you will find yourself in trouble. 
For those of you who are curious as to what I use this is at my work station and at the work stations of each of the 5 staff members who work for me. We are ‘decentralized’ meaning everyone has their own desktop scanner, printer, phone, ect ect. That way-we are ‘mobile’.  I moved my entire office home in one night when the corona virus hit and we had zero down time. No extra stuff needed to be purchased-all I needed at each of my staff member’s homes was power and an internet connection.
PHONE: I use voice over IP Phones that work great with a fast internet connection. Since they use the internet – there is no differnce in terms of phone transferring, ect.  I could be locked down in italy or China without any change in how my staff transfers calls to me.  I’m happy I’m in riverside, however.
Polycom VVX400  and Jive is the combo I use.  I also have a headset that I’m not thrilled about and may be replacing-but seems to work well enough not to replace right now
https://jive.com/

https://www.amazon.com/Polycom-Business-Included-Certified-Refurbished/dp/B07FFCWQVC/ref=sr_1_3?dchild=1&keywords=Polycom+VVX400&qid=1585416351&sr=8-3
POSTAGE: For printing postage and labels I use Brother QL-800 High-Speed Professional Label Printer with Pitney Bowes
https://www.amazon.com/gp/product/B01N49R9KP/ref=ppx_yo_dt_b_asin_title_o00_s00?ie=UTF8&psc=1

https://www.pitneybowes.com/us/shipping-and-mailing/online-postage-service.html

COMPUTERS: I use a dell and I connect it up with a ‘docking station’  and an external monitor by AOC with a stand and a wireless keyboard and mouse I also have lots of other external monitors
https://www.amazon.com/gp/product/B077XX31VL/ref=ppx_yo_dt_b_asin_title_o04_s00?ie=UTF8&psc=1

https://www.amazon.com/gp/product/B06X9C6XFK/ref=ppx_yo_dt_b_search_asin_title?ie=UTF8&psc=1

https://www.amazon.com/gp/product/B07G728B23/ref=ppx_yo_dt_b_search_asin_title?ie=UTF8&psc=1

https://www.amazon.com/gp/product/B00ECDM78E/ref=ppx_yo_dt_b_search_asin_title?ie=UTF8&psc=1https://www.amazon.com/gp/product/B0098Y77OG/ref=ppx_yo_dt_b_search_asin_title?ie=UTF8&psc=1

PRINTERS: I think Brother is good. I have this one for my office
https://www.amazon.com/gp/product/B00BQU141C/ref=ppx_yo_dt_b_search_asin_title?ie=UTF8&psc=1

SCANNER: The Scan Snap is AWESOME. I use this one for my office. 
https://www.amazon.com/Fujitsu-Scansnap-Document-Scanner-PA03656-B305-R/dp/B01JZXVNP8/ref=sr_1_6?crid=29992ARFUY38B&dchild=1&keywords=scansnap&qid=1585417371&s=office-products&sprefix=scan+snap%2Coffice-products%2C308&sr=1-6

DOCUMENT REPOSITORY AND AUTOMATION: I think the options out there are….not great for attorneys.  
Personally, I have paid a large sum of money for a custom solution with a development team-we have been developing for over a year and a half now and so far I have been impressed by my team.  Nearly all my of my cases have been ‘converted over’ and I will have 100% conversion of my cases within 6 months or less.  This software is not for sale at the moment but may be available in the near future to others.  Previously, I used Asana and Doxcera https://app.asana.com/ https://www.theformtool.com/updates/  If I had not been building my own custom solution with a development team-then i would have considered looking into salesforce, as well, as they have a lot of neat features. 

SCHEDULING: You can see it in the links of this email.  I’m a big fan of https://calendly.com/   You can see how mine is set up by clicking on the link below.

CLIENT PAYMENTS: Lawpay.com is really truely the best.  There is no other-many of you already know this.  You can see how mine is set up by clicking on the link below.

CLIENT INTAKE: if you haven’t tried it out yet-I think https://www.typeform.com/ is great.  You can see how mine is set up by clicking on the link below.

EMAIL: I use gmail as my back end for both my email and my calendar-which ties in nicely to  https://calendly.com/
If anyone has any questions-please do not hesitate to reach out to me. 

-david ruegg

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