Estate Planning SEC Filings American Bar Association Distributing Retirement Benefits Upon Divorce Upon divorce, all debts, property and assets must be divided between the spouses according to applicable percentages set by state law. In equitable distribution states, the court divides marital property (or property acquired during the marriage) according to what is “equitable” or “fair.” In community property states, the court will divide marital property in equal shares, or fifty-fifty. In general, retirement benefits are classified as “property” and are thus subject to division in the event of a divorce. Defined Benefit Plans Generally, a “defined benefit plan” is a retirement plan that will provide monthly income benefits which become payable upon retirement. Defined benefit plans use a formula to calculate the retirement allowance based on certain set factors such as age, years of service and salary. As such, these plans are more restrictive. Defined benefit plans are designed to allow for a member to receive their retirement benefits for the rest of their lifetime. They can be in the form of government pensions, union pensions or company pensions. Defined Contribution Plans A “defined contribution plan” is a retirement plan that is based on the funds available in the individual’s account. In general, a member makes contributions to their retirement fund, which is sometimes matched by their employer. The return on their investment of contributions will determine the final size of their fund. These plans are more portable than defined benefit plans since employees can rollover their contribution funds into a new employer’s retirement plan. Examples of defined contribution plans include: 401Ks 403Bs IRAs (“Individual Retirement Accounts”); SEP-IRAs; Educational IRAs; Roth IRAs Keoghs Deferred compensations plans Profit sharing plans Stock savings plans State Law Determines How Assets Are Distributed State law governs the distribution of assets upon divorce. “Marital property” is generally defined as any property that has been acquired by either or both spouses during their marriage. “Separate property” is considered to be the sole property of one spouse and remains undivided on divorce. Equitable distribution states divide marital property “equitably” (fairly) and consider factors such as how long the marriage has lasted, the earnings of each spouse, what each spouse has contributed to the acquired asset. In contrast, based on the presumption that both spouses have contributed equally to the marriage, community property states divide marital property “equally” (or fifty-fifty). There are only nine community property states including California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin. Retirement Benefits are Generally Considered to be “Marital Property” Retirement benefits or pension plans of either spouse are considered to be marital property, to the extent that they are earned or contributed to during the marriage. Accordingly, retirement plans and pensions must be included with the rest of the marital property that is to be divided upon divorce. Typically, the benefits are valued and then apportioned between marital and separate property by the court in a Domestic Relations Order (DRO) or a Qualified Domestic Relations Order (QDRO). However, any contributions made prior to the marriage or after divorce are usually considered to be separate property of the contributing spouse. Retirement Plans Not Included in Marital Property Some retirement benefits and pensions may not be included with the other marital property that is subject to division upon divorce. Since some retirement plans are controlled by federal law, states are thereby preempted or precluded from applying their marital property laws to those assets. Examples of retirement benefits which are not included as distributable marital property are as follows: Social Security payments Military injury compensation Railroad worker’ retirement benefits Workers’ compensation disability awards Methods for Distribution Where the retirement benefits are considered to be marital property, a court might use the “deferred distribution” or the “immediate offset” approach to divide the assets upon divorce. Under the deferred distribution approach, the court typically retains its jurisdiction over the divorce and waits to distribute the benefits to the parties when they are actually paid to the pensioner. In contrast, the immediate offset approach instantly awards an offsetting amount of marital property to the non-employee spouse, equivalent to their share of the plan, and the entire plan itself is awarded to the employee spouse. This is done by calculating the present value of the pension and determining how much was earned during marriage. Domestic Relations Order/Qualified Domestic Relations Order In order for one spouse to receive a share of the other spouse’s benefits on divorce, a court must issue a DRO or QDRO to apportion the pension. These orders typically provide specific language as to how retirement benefits are to be distributed between marital or separate property, and thus between the spouses. DROs and QDROs outline how the funds are transferred from the spouse holding the retirement plan, to the spouse to receive a share of the plan, and are included in the Final Judgment finalizing the divorce. Call our office with any questions you may have. PROBATE COURT Madge Bradley Bldg. 1409 4th Avenue San Diego, CA 92101 Tel: (619) 450-7676 Directions: 163 south to 5 north, exit 4, then left on 4th. Bldg on left. Downtown Law Library 1105 Front Street San Diego, CA 92101 Tel: (619) 531-3900 Directions: 163 south to Ash Street, then Left on Front St. (Library is located on the corner of Front and Required Disclosure About Funeral Costs Without prior arrangements, planning a funeral may involve the need to make difficult decisions while under substantial emotional distress. For this reason, manybelieve that funeral homes and cemeteries take advantage of consumers in such circumstances by inflating funeral costs. Funerals rank as one of the most expensive “purchases” most consumers will ever make. The Federal Trade Commission (FTC) estimates that a traditional funeral, including the price of a casket, costs at least $6,000, and “extras,” like flowers, limousine charges, and other items may result in a bill in excess of $10,000. The FTC’s Funeral Rule In response to years of criticism about the funeral industry, an FTC “Funeral Rule” (Rule) became effective in 1984. The Rule applies to all funeral providers, licensed or not, and mandates that certain information must be disclosed to consumers. “Funeral provider” is defined as one who sells or offers both funeral goods and services, or solely services, to the public. Those who sell only funeral goods, such as caskets, are not covered. The basic requirement of the Rule is that funeral providers must give customers a written, itemized “General Price List” (GPL) of funeral goods and services, along with descriptions. Although “packaged plans” are permissible, once funeral arrangements are completed, an itemized statement of goods and services selected must be provided. Other Requirements of the Rule Funeral providers mustinform consumers of the right to select only the goods and servicesdesired and that they need not purchase a “packaged plan.” Funeral providers must disclose whether embalming is required by local law. The provider may not charge for unrequested embalming, unless embalming is required by state law. In addition, it must be disclosed that funeral arrangements such as wakes or “viewing” may make embalming necessary. Generally, embalming may not be performed without prior consent. There must be disclosure that the customer (generally) has the right to choose methods such as direct cremation or immediate burial, which do not involve embalming. There must be disclosure that containers, other than caskets, are available for cremations. Funeral providers must disclose added service fees and mark-ups on goods and services purchased from others on the customer’s behalf. Funeral providers must not say that a casket will preserve the deceased indefinitely. The funeral provider must not refuse to use caskets purchased elsewhere or charge a “handling” fee for use of such caskets. Selecting and Paying in Advance To avoid placing unnecessary stress on family members, many individuals plan their own funerals and even pay for them in advance. A document setting forth details of the plan selected and the preferences for the funeral should be given to family members and an attorney. Funeral preferences should not be documented in a will since the will is often not read until after the funeral. Fraudulent “prepaid funeral” schemes are common, however, so purchasers should be aware of such offers. As with other funeral services, prepaid funeral plans are subject to the same disclosure requirements. The FTC recommends thatthose considering a prepaid plan investigate the following issues: What exactly is being purchased? (Casket, funeral services, etc.) What happens to the money that is being paid? (States vary in requirements for handling such funds ,- some require deposit into an interest bearing trust account, others have no regulation at all) What financial protections are available if the company goes out of business prior to the funeral? Details regarding refunds, in case of a change of mind What happens if the purchaser moves to a different area? Some policies can be transferred, but often require an additional fee Additional fees that may become due when the funeral is actually held Prepaid plans are subject to the FTC “Cooling Off Rule” (sellers must inform the customer of the right to cancel the sale within three business days and receive a full refund; further, the seller must provide cancellation forms to the customer) Legal News Online Be good to your children and your family, take care of them with a Living Trust Package!
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