QDRO Issues-Is my ex responsible if my ex loses money in our 401k?


Family Law Attorney Friends-
In the past 48 hours-I have had 6 different client appointments with the ‘out spouse’ whom in one form or another has asked me the following set of questions on the 401k account I was retained to divide via QDRO-that is ‘in progress’ but stuck due to court closures: 
If my ex manages my money poorly in this turbulent time-do I have a claim against my ex and can I demand a higher percentage out of the 401k-because I don’t manage it or have control over it? Can I divide the funds without a QDRO since the Courts are closed?  Can I direct my ex to manage my money in a specific way and do they have to comply?  What if they don’t-what recourse do I have? Can you-David Ruegg-freeze up my ex’s account?
In addition to these 6 client appointments over the past 48 hours, one attorney-who I have not worked with previously in the past-informally asked me to produce my entire file, including all emails-because apparently her client did not feel my advisement on these questions were appropriate and her client accused me of acting in a way that was ‘not neutral’.  This attorney and I had a very productive call yesterday wherein I believe I resolved these concerns and I look forward to working with this attorney through the completion of her client’s case.  I did produce my entire file to her including all email correspondence-as I would in any matter where I am neutral and have no attorney-client privacy obligations and such a request is made of me.  
Given the frequency of these questions-In an effort to get ahead of what I’m apparently going to get ‘caught in the middle of’ – and to avoid hundreds of clients and attorneys asking for ‘full copies’ of my files – I want to preemptively answer these questions and the policies/procedures/philosophies of my office. 
ON BEING NEUTRAL-I want to advise all counsel who refer me cases-that in those cases I am retained as a neutral (vast majority), it is my policy to avoid ‘injecting problems’ where there are none present, but at the same time-it is my duty and responsibility to be honest and to serve as an ‘expert sounding board’ to answer expert questions with information/case law/codes that may or may not be readily or accurately available through a ‘google search’ of these Q&As.  
Being a neutral expert does not mean avoiding questions and answers that might lead to litigation/cause problems-it means having a consistent response/expert opinion to similarly situated legal fact patterns-no matter who is asking the question.  It means giving my opinion as to both sides of a legal argument-including providing code sections/cases that support each side and it means giving ‘guidance’ as to what is a practical solution and what I think a judge may do-but carefully advising clients that I am not their judge and if they don’t like my responses-then the ‘higher authority’ to go to-is the assigned judicial officer in their case.  If my responses/opinions push a case into litigation or a ‘deal falls apart’ because of my responses-then the ‘deal or court order’ was likely unstable to begin with and “it is what it is-that’s how family law rolls”.  I HAVE to stand by my words/legal positions and can NOT ‘change my viewpoints’ based on who is asking me the question or if it might cause problems.  If I am ‘picked apart’ on the stand in a litigious trial at a later point in time-I consider that a cost of doing business ‘the right way’.  I am notifying all counsel who work with me that I will advise ANY client/attorney where I am retained as a neutral expert-as follows (I plan to put this messaging into a ‘standard letter’ so that I am consistent with the information I share with all of the clients/attorneys I work with):
If my ex manages my money poorly in this turbulent time-do I have a claim against my ex and can I demand a higher percentage out of the 401k-because I don’t manage it or have control over it?  

I think the Kamgar case is the best/most recent case we have that is instructive as to fiduciary duties and breach of fiduciary duties related to ‘management of community investments in equity markets’.  As a starting point-I recommend all counsel reread this case.  Use your legal research tools to look up or read it here: https://www.leagle.com/decision/incaco20171117070
While the Kamgar case is instructive-I think the fundamental question that is an unknown is “what is the definition of risk and what classifies a transaction as too risky such that liability is triggered for the party who has their finger on the buy/sell button in their community 401k account or brokerage account”?  
I think risk is a very subjective term whose definition can vary widely between judges.  I used to think ‘bitcoin’ was a risky investment and an investment of any community funds in the crypto-currency markets without consent of the ‘other spouse’ could trigger liability.  Recently-Oil Volatility indexes have surpassed bitcoin volatility.  Digest that for a minute.  Is it now considered ‘unsafe’ to invest in oil and such an investment could trigger ‘liability’ due to volatility risk?  There is no case to my knowledge that ‘benchmarks’ and draws a line in the sand for what is and is not ‘too risky’ to invest in. 
Remember-there are two ways to ‘lose substantial sums of money’ in current times: (1) You have already lost 20-30% of your portfolio over the past 2-4 weeks and you leave your investments in the stock stock market-and as a result of the coronavirus, you lose another 20% to 30% over the next 2-4 weeks; (2) You have already lost 20-30% of your portfolio over the past 2-4 weeks and take your money out now and put it in mutual funds/bonds and the equities market bounce back up 20%-30% as the markets recover.  (2) Is called a ‘lost opportunity cost’ and I think it could be argued in court that this also creates a liability for the account holder. 
The point I’m trying to make-is we are all sailing into uncharted territories here and my advice is it is entirely possible that you are ‘darned if you do and darned if you don’t’ for the buy/sell moves our clients are making or moves our clients are making by omission (not making a buy/sell move is also a choice with ramifications)-and a judge could go either way.  I think the definition of ‘risk’ has changed overnight and as a result, the liability that flows from what is ‘too risky’ has also changed.  Is it too risky to pull your money out?  Is it too risky to leave your money is?  Who knows-maybe Warren Buffet but certainly not David Ruegg and probably you will not find a consensus among judges when litigating this issue.  
Can I divide the funds without a QDRO since the Courts are closed?  

Maybe-but with some difficulty and complication-certainly.  
Account holders *might* be able to roll out one-half of their 401k accounts into IRA accounts in their own names (some plans require termination of employment, first)…but consider the following before you recommend this strategy to ‘separately manage’ investments to your clients: (1) If ANY contributions or withdrawals were made outside of the marriage, such as after separation-then to figure out the exact amount to ‘roll out’ would require a separate property tracing of a forensic CPA; (2) You can not ‘roll out’ from Husband’s account into Wife’s account and avoid a QDRO-that would trigger penalties and taxes by the IRS and a whole host of tax related problems-so Husband can ONLY roll from his 401k into another IRA in Husband’s name.  This means a post judgment modification would then be required to complete an IRA to IRA transfer-since you would then no longer be doing a QDRO as ordered in the judgment, but would rather be doing an IRC 408(d)(6) division order (‘IRA QDRO’ if you want to call it that); (3) if you ‘roll out’ into an IRA account with the intention of ‘separating out’ the investments of the parties for the purpose of having different investment strategies in different accounts-you are ‘giving up’ the right of the out spouse to do a partial or full cash out via QDRO-because the “QDRO Cash Out Tax Penalty exception” does not apply to IRA accounts. So you are losing some rights by doing this. See IRC 72(t)(2)(C) for QDROs and compare that to IRC 72(t)(3)(A) for IRAs for verification of these comments. 
You can also take a loan out-but remember-loans are ‘after tax’ and QDROs divide ‘pre-tax’ so you are not trading apples for apples here….A ‘loan-ed dollar’ is worth $1 and I can buy $1 worth of candy with it.  A ‘401k dollar’ is worth $1 – tax liability on $1 (maybe 25 cents) and I can probably only buy 75 cents worth of candy with a 401k dollar after it’s taken out of the retirement account.  Loans are also ‘capped’ at $50,000 and so in many cases-are not enough to do a proper split between parties. 
Can I direct my ex to manage my money in a specific way and do they have to comply? 

You most certainly can and you most certainly should and your ex has fiduciary duties to you-so yes-they must listen to you and the investment strategies should be joint. I think that if an ‘out spouse’ wants to ‘hold accountable’ the investment moves of the account holder spouse-then a written instruction that is specific and direct is recommended. It creates a record to show the judge which party is actively working with their former spouse to preserve the community assets and manage the community assets appropriately and which parties are working unilaterally to the detriment of the other party or assigning blame unilaterally.  While 401(k) plans are not houses-the same concepts apply.  You would not take a wrecking ball to your family residence and if your ex told you they planned to take a wrecking ball to your family residence-you would not stay silent.  I think if you want to protect your 401(k)-you need to be vocal about what you want and advise your ex that you don’t want them to take a wrecking ball to the 401(k) via a ‘buy/sell’ move or you ex needs to make a ‘buy/sell’ move to avoid the next coronavirus wrecking ball that is coming. 

What if they don’t-what recourse do I have?

You *might* be able to freeze up investment portfolio allocations via joinders and notice of adverse interests being sent to the plans-but I would not count on it.  401(k) Plans are governed by ERISA and are federally preempt from joinders and compliance with notices of adverse interest and generally DO NOT freeze up the ability to re-allocate investment portfolios.  Some DO freeze up investment allocation moves, however.  If you believe the best thing to do is ‘shelter in place’ your retirement assets, then try it and see-there is no ‘uniform policy’ across different 401k and other defined contribution accounts. It might work-it might not.  If the plan admin will ‘freeze it up’ with a notice of adverse interest, the plan admin will probably also ‘unfreeze it up’ with a ‘notice of release of community hold request’. 
Your ONLY recourse if the plan admin does not respond with a freeze in response to a notice of adverse interest-is likely going back to court and asking the court to assign liability for losses at a later date in time when the courts ‘reopen’ to litigating these sorts of issues….which may be a long time because it’s possible that these financial issues will be ‘de-prioritized’ against all the custody issues that are most certainly building up during this time and require the court’s attention upon reopening.  In other words-it’s possible the courts will ‘reopen in stages’ and the QDRO stage may be later in time then the custody dispute stage….be prepared for ‘justice to shelter in place’ on these QDRO issues for awhile….
Can you-David Ruegg-freeze up my ex’s account?

As I stated above-there are x2 ways you can ‘lose money’ in this market-by making active buy/sell moves (getting out of the equities market right before the ‘bounce back up’ – and realize a ‘lost opportunity cost’)…or by NOT making buy/sell moves (i.e. by not selling the equities you have to get out of the way of the next coronavirus wrecking ball). 
As a QDRO attorney and as a neutral in most of these cases-it is above my pay grade and certainly NOT within the scope of my retention to make the ‘financial call’ on what the “right move” financially and therefore I decline to participate in an active role to direct parties how they should or should not invest their money and I decline to participate in freezing account investment reallocation. 
HOWEVER, I have tools that *might* accomplish this task of ‘freezing up’ account investment moves-such as joinders and notices of adverse interest.  As a neutral attorney-I offer these tools to anyone and everyone who wishes to use them.  Joinders can not be filed right now, but un-filed notices of adverse interest can be sent to the plan and may work in a lot of cases and I will provide a template to all parties/attorneys who believe ‘freezing up’ accounts is the ‘right’ move to make. But YOU-the client/attorney must make these decisions to send or not send out the joinders/notices of adverse interest and YOU will be held accountable for these decisions, I will not participate or put myself in the middle of this decision making process that has deep ramifications in these turbulent times.
I hope this email provides those who work with me guidance on how I operate and I hope this minimizes the need for the frequency of these appointments I am being flooded with on these questions.
thank you and wash your hands,
-david ruegg