What the Hell Are QDROs and How Do I Deal With Them in My Divorce? with Matt Lundy
What do you do when your divorce involves a QDRO? Do you even know what that means or who to reach out to? Luckily, our guest on today’s episode has the inside scoop. Join Seth and Pete as they talk with Matt Lundy about QDROs and how to navigate the world of sorting out money in your various retirement accounts.
Matt’s handled over 14,000 QDRO cases – you read that right – so he knows what he’s talking about. It’s a complicated process that’s all about splitting up retirement accounts. So why is it so daunting? And what should you know about them? In this episode, Pete and Seth work with Matt to lay out a few key steps you should have prepared if you’re going to end up with a QDRO in your case.
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Pete Wright:
Welcome to How to Split a Toaster, a divorce podcast about saving your relationships from TruStory FM. Today, your divorce isn't over till the money's in the 401k.
Seth Nelson:
Welcome to show, everybody. I'm Seth Nelson. As always, I'm here with my good friend, Pete Wright. You've worked hard building your career and you feel like you're prepared for the future of retirement, but what happens to that future when you move forward with your divorce? Today on the show, Matt Lundy joins us to talk about the ins and outs of the QDRO, and similar tools used to divide your retirement assets when the marriage comes to an end. Matt, welcome to The Toaster.
Matt Lundy:
Good to be here. Thank you for having me.
Pete Wright:
Now, Matt, you're relative to friend of the show and past guest, Michael Lundy.
Matt Lundy:
Yes, I am. He's my older brother. It's actually how I know Seth also. I practiced family law in Tampa for about five years before I relocated to South Florida.
Pete Wright:
So you decide, "Michael's a lawyer and I'm his brother, and I think I'm going to be a lawyer too." What is it about Michael that made you think, "I'd rather start my own firm?"
Matt Lundy:
Honestly, at the end of the day, it was economics. I do something where I get referrals from family law attorneys.
Pete Wright:
Sure.
Matt Lundy:
So working for him was an impediment to my own personal economic growth.
Pete Wright:
When did you start saying that, when you guys were 12? "Playing with you is an impediment to my economic growth, man."
Matt Lundy:
If you've got to ride someone's coattails, my brother's coattails are not that-
Pete Wright:
Not too shabby-
Matt Lundy:
Yeah.
Pete Wright:
Not too shabby.
Matt Lundy:
I got the benefit of working in a place where they had clients all across the, let's say, issue spectrum in family law so that when I spun out into doing what I'm doing now, which is highly specific within family law, I was very well-versed in the vocabulary of family law. Like Seth, for example, has a way of speaking to his clients that I think if other service providers heard a family law attorney speaking to their client, they would've never heard anything like that before in their life. So I understood that vocabulary and I was able to take it with me and incorporate it into what I'm doing, and I think it's made me very successful at doing it.
Pete Wright:
That sounds like fantastic grounding for our conversation today. Unfortunately, I think buried in there was a compliment for Seth, and we try to keep those to a minimum on the show.
Matt Lundy:
That'll be the last one.
Pete Wright:
Okay. Thank you. I have a bell. I'll let you know.
Seth Nelson:
Just for the record, Pete, unlike when Michael was on the show and you were trying to get Michael to say, "Seth's wrong and obviously, I was right the whole time," one, Matt's the smarter, better looking brother.
Matt Lundy:
You're right again.
Seth Nelson:
Yeah. See, see, I knew I'd get a second write out of him, Pete. That didn't take long, but Matt knows far more about the exhilarating topic of QDROs that we are about to discuss than I do.
Pete Wright:
You keep saying QDRO like you're Maverick in Top Gun. Can we put an end to that? What if it is a QDRO? Why do we keep making it my alternate jet partner?
Matt Lundy:
A QDRO effectively is a special court order that we use in family law cases to transfer money from a retirement asset, from one spouse to another, or from one parent to another for alimony, property division or child support. The reason that's a big deal, and the reason it's a topic area unto itself is that we are a big creditor country. People take out credit here to whatever limit they can possibly take out credit and retirement accounts, for that reason, have become creditor protected. So you can't encumber your retirement plan.
Pete Wright:
Wait, wait, wait, what does that mean for my cousin, Kendall? What does that mean?
Matt Lundy:
You can't assign a part of your retirement plan, generally speaking. So if you have, for example, a pension through the state of Florida, you can't try to give part of it to a creditor. It's not assignable.
Pete Wright:
Oh, okay. So I can't use it to pay off debt?
Matt Lundy:
Correct.
Pete Wright:
Got it.
Matt Lundy:
Once you get it paid out to you many years down the road when you retire-
Pete Wright:
You can do whatever you with it.
Matt Lundy:
... you can use the money. Right. But while it's in there, it's creditor protected with limited exception of what I do.
Seth Nelson:
Because in the law, Pete, there's always an exception to the rule.
Pete Wright:
Always an exception.
Seth Nelson:
Then there's the exception to the exception, which just means you're right back at the rule.
Pete Wright:
Well, it's actually really interesting, because I read the topic that we decided to do today and I thought, no offense to Matthew, "This is going to be dry as a bone," and yet I start searching and where do I start? The bastion of all legal knowledge, Reddit, and it turns out-
Seth Nelson:
Have I taught you nothing?
Pete Wright:
... there is a massive ... Have I taught you nothing, Seth? You always start with Reddit, always start with Reddit. There is a large contingent of people who are very frustrated by the existence of QDROs. They don't understand them. They don't know why they have to have one, why one was set up in their name without them knowing it, and they just want their money.
Matt Lundy:
That's part of it. That's a big part of it.
Pete Wright:
That's why we thought, let's start the conversation. Explain what they are, why you need one, why you get one when sometimes you didn't even know you were getting one, and what you can do with them.
Matt Lundy:
There are communities of people in divorce that surround this issue. So for example, there's a bunch of wives of NFL players. In that community, somehow, I'm on the Facebook chat board to be the guy to call to divide NFL players' retirement plans because they have three or four different retirement plans, and a lot of the players don't pay what they're supposed to pay for child support or something like that. Then I end up becoming the person that comes in to go and see child support. For example, one not quite Hall of Fame, but All-Star basketball player didn't pay child support for his four kids for 20 years, and I went and seized his pension for $2 million. That was the first time the mother of his children had received a single dollar for child support. It's just like everything in family law.
Everything seems like it's going to be so simple, but then it's not, and I know that down the road, you're going to use the expression divorce industrial complex, because I've heard you use that a few times on this podcast, but that's why I started with the explanation of, we're supposed to creditor protect these retirement plans, so this isn't just difficult for the sake of being difficult. It's supposed to be hard to get at a retirement plan and we're a free market, so there's over 100,000 retirement plans and that you got to have somebody who knows what they're doing to navigate those plans.
Pete Wright:
Okay. So Seth, to you, where do you think it is important when you put yourself in the head of your clients, where is it that you start this conversation?
Seth Nelson:
When I'm having this conversation during a good old-fashioned divorce, where we have the parenting plan, equitable distribution, alimony, child support, and everything else, the process, this falls at the beginning in equitable distribution. A couple is married for a period of time, and during that time, one of the spouses is working and part of their compensation is a pension. It is deferred compensation. They will not receive it until they retire, but the portion that is earned during the marriage in Florida, check your local jurisdiction, is marital money, and therefore, the spouse that isn't on the retirement plan is entitled to a portion of it when the other spouse retires. So I'm going to put some names on this. Pete, you and your wife are married, she's working, she's working for an airline and she has a pension. The day you get married is the day she started working. The day she retires is the day that you get divorced, so her entire pension, and my hypothetical is, marital money and you're entitled to half of it.
Pete Wright:
Okay. More divorces should be like that then.
Seth Nelson:
Now, we had Judge Tibbals here on the show, and if Judge Tibbals signed an order giving you half that pension and you take that, and all it says is marital divorce, it's a pension. Mr. Wright gets half of it, and you take that to the airline, the question becomes whether they will enforce that order, or if they're bound to enforce that order. That's why we have Matt on the show.
Pete Wright:
So a judge can sign this, Matt. And the airline can come back and say, "Yeah, we don't think we'd like to enforce that?"
Matt Lundy:
All of the power rests with the retirement plan and the reason for that, so there are two expressions that I always use in family law. I've been working in family law for 20 years, and one expression that I use is, everything is everything. So whenever people talk about how they fight over pots and pans and they fight over children, there's virtually no emotional difference to them in their heads, that's an aside. The other is, there's what happens in the planet divorce within the case between the lawyers with the judge present, and then there's what happens on the planet earth. When you leave the divorce and you expect third parties to do things, and like what you're talking about on the Reddit boards, that's where those people are running into conflict.
They might easily resolve something within their family law case, very smoothly, get a judge to sign a court order, and now they've got this third party to contend with that's relatively insensitive to their plight. So they end up sometimes having small battles with the retirement plans. I think a lot of the family law attorneys are not comfortable being the lightning rod for those problems, and that's created the niche that I'm working in. But yes, a judge can order something and unless the retirement plan itself finds that what the judge has ordered complies with their rules, the plan's rules, then they don't have to follow whatever the judge says.
Seth Nelson:
Here's why, Pete. The local judge, Hillsborough County Florida judge, Florida Constitutional Officer, is making a decision in signing an order on something that's governed by federal law.
Matt Lundy:
Precisely.
Pete Wright:
Oh.
Seth Nelson:
And federal law covers all retirement plans.
Pete Wright:
Okay.
Seth Nelson:
And federal law, and Matt will correct me if I'm wrong says that the plan administrator, the person in charge of administering the retirement plan is the ultimate decision maker on how these funds get divided. Is that correct?
Pete Wright:
So there's a question of jurisdiction and authority.
Matt Lundy:
That's exactly right. That's exactly right that the state court, remember they just have this limited ability to enter this court order to require the plan to make this payment, which is an exception to the creditor protection of these retirement plans. So what's happening is, people think they're done with their divorce. When they're done, they're ready to be done because they've just spent a ton of money and a ton of emotion and now here's, oh, this one little thing, which, depending on your financial circumstances may be a little thing or may be a giant thing. If you're going to get hundreds of thousands of dollars from someone's 401k and they don't realize that it's going to take months or depending on the plan, maybe a year, and so they become hysterical. This isn't a process that's really good at informing people emotionally and getting them to calm down as I'm sure you guys know from your discussions.
Pete Wright:
So the order that you just talked about, we had Judge Tibbals, he signs an order that is a QDRO, right? That is a qualified domestic relations order. Is that correct? QDRO?
Seth Nelson:
It could be if the lawyer did it properly, it could just be in the final judgment that says they get half. If it's just in the final judgment that you got to pay it out, I'm telling you now, that plan is not going to accept it. So this is what I do, and this is what most lawyers that I know do is, let's say we are there and we have a marital settlement agreement, the parties are agreeing. In the agreement, it says that the retirement plan will be drafted by a QDRO, a Qualified Domestic Relations Order, that's the technical term, if required, right? And we say that they are going to hire, they are agreeing to hire Matt Lundy, to represent them in getting the plan administrator to ultimately do their job, to divide the money. We say in there exactly how it's going to be divided.
We work with Matt to get the language that we need to make sure it's done properly, and even sometimes we say, the intent of this provision is to do X and the parties will agree that if they have to amend this, they'll come back to amend it based upon Matt's advice to effectuate the intent. So there's all sorts of stuff, and check your local jurisdiction if that all works, but there's all sorts of stuff that we try to do. So if the plan administrator down the road says, "No," we can quickly fix it if we have to. Then we send the document to Matt and Matt takes it from there.
Matt Lundy:
I wish what you said at the very beginning of that were true, which is that everybody does what you just described. But what you just described is what you and a community of good lawyers do. The truth is probably 80 or 90% of my time is spent trying first to figure out either what somebody has or what they intended to do, which is not easy based on a lot of the settlement agreements people sign. The process of getting a contract completed in a family law case is very, I think the word I'm looking for is rough. Those are rough contracts. They're more like outlines than contracts to varying degrees, depending on the case, depending who's involved. But a lot of the times they're written on the fly. You're in mediation. Maybe it's like a courthouse, mediation, whether it's only a short two-hour mediation and people just scribble something, and then they're like, "Well, I've used him in the past, so he'll figure it out," and then it's chaos. That's when you get to the thing with the people on the Reddit board.
Pete Wright:
Yeah. "Where is my check?" is the thing, right?
Matt Lundy:
Yeah. Right.
Pete Wright:
"Where's my check? I thought I was getting a check and I didn't instead I got this thing that was set up without my approval, it just happened."
Matt Lundy:
Right.
Pete Wright:
I want to go back one step though, which I think is the thing that stuck out to me in the earlier part of the conversation, obviously, this question of jurisdiction and authority, what do you do then, Matt, to sway or make any impact with plan administrators who are, who might be otherwise recalcitrant to help meet the intent and the needs of the divorcing couple?
Matt Lundy:
Well, I'm glad you asked that question. No one ever asks me that. Sometimes I'm very nice to them, and sometimes I'm extremely threatening to them, depending on how big of a company they are. If they're a big company, you have to be really nice to them because they'll just lose you at the bottom of the pile.
Pete Wright:
Yeah.
Matt Lundy:
But if they're a small enough company, sometimes, look, I just had one where the husband who was supposed to be transferring money to his ex-wife was in a relationship with the human resources lady who was the plan administrator, and she just wouldn't let the transfer go through. I had to go back to the family law attorneys, have them file a motion for enforcement, have them set depositions and this whole ridiculous rigamarole so that we could transfer $80,000 from a 401k. At this point, you guys know I'm not making that story up. That's a real thing.
Pete Wright:
Wow.
Seth Nelson:
So here's what you're really nibbling around, Pete. It's a problem. These plan administrators have so much power, and you would think like in Matt's example, "Okay, there's an emotional connection. She's just messing with them." What Matt also runs into is a plan administrator that doesn't understand what falls within their power and does not. So correct me if I'm wrong, Matt, because I think it was one of my cases years ago. We prepared a QDRO. Matt sent it to the plan administrator for them to approve the QDRO, they did. We sent it back to the judge, had the judge enter the QDRO.
Matt takes the QDRO back to the plan administrator and looks at it and the plan administrator says, "Okay. Yeah, I'll do this. Now that doesn't sound like a problem, Pete. Here was the issue. The plan administrator on this case was dividing an asset that wasn't covered under federal law. But she thought that she had the power to say no. Instead of suing her and schooling her that she doesn't have the power, it was easier to get a bullshit order that she agreed with that we didn't need just to get her to transfer the money.
Matt Lundy:
Correct. That's the dancing part where I'm very nice to them and we just do what they want. It's just easier-
Seth Nelson:
Been cheaper.
Matt Lundy:
To be honest, a lot of what we're going to discuss today is going to be lost on people potentially who are not financially savvy, who are not professional people. The client doesn't understand what you just explained. What you just explained, they turn to me and they're like, "Dude, just get it done. I don't want to do this anymore. Can I please have my money and move on?" Which I've done the same thing over 14,000 times. So I hate to say it, but I'm becoming slightly desensitized to just seeing the same problems over and over again, but I do feel for those people who haven't done anything wrong. I don't necessarily appreciate the frustration that's being expressed to me, but that's my job. It's the same thing with being a family law attorney. What I do as a microcosm of what Seth does and I'm dealing with the very same set of emotional problems. I'm just not going to family court to litigate all the time and I'm not dealing with children's issues by and large.
Pete Wright:
Okay. So with that perspective, when you say, "Okay, the majority of what people are going to hear is going to be lost on them," I really don't want that to be the case with this episode. What I'd really like is for somebody listening to this who is dealing with retirement issues to have a map, to understand what they need to do to communicate with a specialist like you, to communicate with their family law attorney and know basically what to expect over the course of this. If there's anything they can do to make the process easier, we should tell them how to do that.
Matt Lundy:
So the first thing you want to do is you want clear identification of what each party has. You don't want to get to the end of your case and have a blurb about, "We'll divide whatever retirement plans we have 50/50," because at the end of the day, like I said, a marital settlement agreement and a final judgment, to some extent, are not intended to be highly specific all the time. Sometimes they're written in such a way that they're just a rough outline, but on this particular topic, because you have to execute with a third party, you need to know exactly what you're asking for. So if somebody, for example, works for the state of Florida or the state of California or the state of New York, and somebody says they have a retirement account through the state, you have to ask the next level of question. What is the retirement account that they have? Every retirement account has a legal name, right?
Pete Wright:
We're talking about like an IRA or a 401k or-
Matt Lundy:
IRAs have account numbers, so that's easy.
Pete Wright:
Okay.
Matt Lundy:
Right. So we'd say it's the Fidelity IRA account number 1, 2, 3, 5.
Pete Wright:
Got it.
Matt Lundy:
Where somebody has a state of Florida retirement plan, they've either got a state of Florida retirement pension plan or state of Florida retirement investment plan.
Seth Nelson:
So step one, identify the asset and have your lawyer, or you, call up your retirement plan and say, "What is the legal name of my retirement?" Get that.
Matt Lundy:
Exactly.
Pete Wright:
Okay.
Matt Lundy:
So that when you get to contract writing time, you're going to name that plan by name. We're not going to be broad on the issue of asset identification. Asset valuation might be a little bit different. You might agree to something a little bit more broad, like 50% of whatever its value is on a certain date, but asset identification is not negotiable, so that's the first thing. The second is, once you've got the name of it, you have to figure out what it is so you don't accidentally waive part of it. Retirement plans are not checking accounts., Whereas, a checking account is just cash balance that's easy to split what's in there. You look at its value, somebody writes a check, you're done. A retirement account might consist of several different components.
So for example, somebody works for Federal Express and they have a Federal Express pension, their pension has a traditional component, so a component that will pay out in the future a future stream of income. It has what's called a portable pension account, which is like a lump sum cash balance part. You don't want to just reference one or the other because if you only reference one, the other party's going to say, "Well, the reason we left the other part out was because we didn't intend to include it. I disclosed it on my financial affidavit, but we didn't specifically reference it inside of our final judgment, or our settlement agreement." So step one is, specifically identify it. Step two is, figure out exactly what it is and make sure that you assign part of it, all of it.
Pete Wright:
All of it, the total valuation of the entire plan.
Matt Lundy:
Correct.
Pete Wright:
Okay.
Matt Lundy:
Then step three is making sure that the client understands, or that you understand if you are the client what's going to happen next. So someone should know that, "Hey, we're signing a settlement agreement. Either your lawyer or somebody like me is going to do this QDRO and it's going to take X amount of time." The number of people that come to me and say, "I need this money in the next two weeks, because I need to refinance my house," or something like that. Then I'm like, "Well, this minimally is going to take two to four months." Trying to get that through somebody's head when, like I said, everything is everything, it becomes like a financial nightmare for them. Now their life is ruined because they have to wait two months to get money,.
Pete Wright:
Money, which they didn't have in the first place. But I think that the second question for me is, do they really get money in the end of this? They don't just get a check, right? Doesn't it have to go into another qualified retirement account for them?
Matt Lundy:
It depends on the type of retirement plan. There's limitless numbers of retirement plans, but if we're talking about something like a 401k, usually to avoid tax consequences, you have to roll that over into an IRA when it comes to you, or roll it into your existing 401k, but they will give you options to cash out money that you get subject to regular income tax.
Seth Nelson:
So let me just break that down a little bit. People get worried about this all the time, because in our mind we say, "Wait, if I'm going to tap into my retirement and I'm not of retirement age, I'm going to have to pay penalty and taxes."
Pete Wright:
I'm not even in this situation and I'm nervous about it right now, just sitting here, I'm personally nervous about it.
Seth Nelson:
So now what happens is, in a divorce, there's the exception to the rule that we talked about. In a divorce, if I'm giving half of my retirement to my soon to be ex-spouse or my ex-spouse, that transfer of money is not what we call a taxable event. It does not get taxed. So my 401k has $100,000 in it, $50,000 is going to go to my ex-spouse. She sets up a 401k, we get a QDRO through Matt. Everyone signs off. It's no problem. The plan administrator, they take the 401k and they put it in hers. IRS does not care.
Pete Wright:
Everybody gets to have a confetti party and everything-
Seth Nelson:
That's right.
Pete Wright:
... is fine. I'm sure that happens a lot.
Seth Nelson:
Exactly.
Pete Wright:
Yeah.
Seth Nelson:
Exactly.
Pete Wright:
Yes.
Seth Nelson:
Then upon retirement, when she takes out her 50 grand, maybe she takes out $5,000 a year, that will be a taxable event as income. Okay?
Pete Wright:
Yeah.
Seth Nelson:
Now, there's the exception to the rule. As incident of divorce, and Matt, correct me if I'm wrong, my former spouse, my ex-spouse says, "I want that 50 grand today. I don't want to wait for retirement. I need it now. She can get a one-time distribution, she will not be subject to penalties, but it is going to be taxed.
Pete Wright:
A taxable event.
Matt Lundy:
Correct.
Pete Wright:
So the wise lawyer will say, "Okay, hypothetically, if the person with the 401k has been working and has high income, we don't want them to pull it out as an incident of divorce, because it will be taxed at a higher rate than the spouse that doesn't have an income, so you can save money by doing that." But talk to your financial planners, talk to your lawyers, and there's a lot of lawyers out there that don't know that you can pull it out as a one-time event.
Seth Nelson:
Interesting.
Matt Lundy:
The other thing is they don't exactly understand the tax consequences. They'll understand that the transfer, let's say they write, "Husband shall pay the wife $50,000 from his 401k via QDRO," she thinks she's getting $50,000 in cash. He doesn't care because she's going to be the one that's taxed on it. Then she takes it out and realizes that she's, if you're in Florida, she's subject to federal income tax. If she's another state. She's also subject to state income tax. She might only get $35,000.
Pete Wright:
Yeah, suddenly that stings. Once again, everything is everything. "How'd you take all my money?"
Matt Lundy:
Precisely.
Seth Nelson:
But the transfer or the one time coming out is federal law, but the tax could be federal law for income tax and then state income tax.
Pete Wright:
And state law for income tax. Yeah.
Matt Lundy:
Precisely.
Pete Wright:
Okay. Well, so far this sounds awful. You've done 14,000 of these, you say?
Matt Lundy:
Over 14,000, yeah.
Pete Wright:
Oh, my goodness. What a knot. All right.
Seth Nelson:
That's just last week, Pete.
Matt Lundy:
Try explaining what I do to a stranger after this podcast. That's what my life is like. People say, "What do you do for a living? I'm like, I'm not sure you'll understand exactly.
Pete Wright:
Yeah. Goodness, Seth, it's back to school, believe it or not. I know where you are. People have been in school for months now. They're probably almost out for winter break, but for us, our kids haven't even-
Seth Nelson:
I was thinking graduation. I think we're almost done here.
Pete Wright:
Well, we have an important announcement from a very, very strong partner with The Toaster, and that is Soberlink. Back to school season, if you're not prepared for it can be difficult for those going through a divorce, this is especially true with alcohol and child safety.
Seth Nelson:
As you know, Pete Soberlink is remote alcohol monitoring technology that's created to help prove sobriety in child custody cases. The system includes high-tech breathalyzer device with facial recognition that allows you to receive real-time updates for monitored co-parents anytime, anywhere allowing for swift intervention to improve child safety. If the parent that's being monitored blows positive, they've been drinking, you can go get your kids, keep them safe.
Pete Wright:
And if you're being monitored and you are doing the work and you don't have a drinking problem, so much, the better. Prove that you are safe to the court. That's what matters. Prove that you are safe and Soberlink is going to help you do that. They have helped hundreds of thousands of people in child custody cases, and they're currently offering a free back to school and divorce packet. That includes a Q&A with a top divorce attorney, back to school checklist, communication tips and more, and you can get your free packet today at www.soberlink.com/toaster. I want to talk about some other exceptions, specifically firefighters, police officers. My understanding is they don't have to deal with QDROs.
Matt Lundy:
It depends. So first of all, it depends where they are, what state we're talking about. What I do, I'm licensed in five states. I'm doing this actively in four states. I got licensed in Wisconsin and just never used it. I had this vision of going there and drinking beer and I don't know, it just didn't happen.
Pete Wright:
Oh, beer and cheese-
Seth Nelson:
That's where I went to college. That's where my dad grew up.
Matt Lundy:
Okay. So firefighters and police officers, a lot of them work for municipalities.
Pete Wright:
Okay.
Matt Lundy:
In Florida, a lot of those municipalities, those retirement plans are specifically exempt from the federal laws that require retirement plans to take QDROs. So what does that mean? That means that I can't submit a court order to them that they will honor and make payments to the former spouse of the firefighter or of the cop. If they participate in the state pension, I can, and usually people who are county police or county firefighters, yes, I can. But if their cities usually not. So that means that poor firefighter or police officer is potentially going have to make direct payment to their ex for the entirety of them receiving their pension.
Pete Wright:
Wow. That also sounds awful.
Matt Lundy:
It is.
Seth Nelson:
Right. So now think about this, Pete. Let's say you've got a pension, I'm using easy numbers, that pays $4,000 a month, and just for easy math, your ex-spouse is entitled to half of that. But when you get paid that pension you're going to pay tax on it. So if you write that the spouse is going to get $2,000 and your pension pays you four gross, the government takes out 500 for taxes, you're left with 3,500, but the document that you signed says, she gets two grand.
Pete Wright:
She get two grand.
Seth Nelson:
You just ate all the tax and she didn't pay her 250 bucks worth of tax.
Matt Lundy:
That's a high-level point, Seth. A lot of, lot of family law attorneys realize that. They'll write in $2,000 into a settlement agreement because they saw some statement and didn't understand the tax con. It's just one more thing that keeps me in business, and when you do as much of it as I have, you see the same mistakes over and over again. Look, if you're a cop or you're a firefighter, it's not just a retirement plan, it's the single most important financial vehicle that you will ever get. Getting a pension after 20 years of fighting fires, you earned that pension, and it's probably going to pay something like 75% of your last income or the average of your last few years of income there, and it is a big deal to you.
I've had literally a grown man, 250-pound firefighter sit in my office, because he demanded an in-person meeting, which is rare for me, and just cry to me about how unfair it is that he had to give his ex-wife of 14 years half of the pension for the rest of his life. So it depends on the case because there's so many different types of cases, but in that particular case that you bring up, it's so important that you get it right for the sake of the person who is the participant, because they're working so hard for that retirement plan.
Pete Wright:
Wow.
Seth Nelson:
And it's emotional Pete, because to them, they always think of it as, "It's my pension."
Matt Lundy:
Correct.
Pete Wright:
Yeah.
Seth Nelson:
It is possessive. It's mine. Then as a family law attorney, when I have to go to them and say, "She's entitled to half of the marital portion," which we then define by length of marriage, length of service, and you do all this math, it just eats at them emotionally to the point that they will overpay to give their spouse more of something else to keep their pension.
Pete Wright:
So take the house, take the car, take what you want, but the pension is mine.
Seth Nelson:
Right.
Matt Lundy:
Well, that's a problem in divorce in general, what is the emotional value of something versus its actual financial value? Because very few assets your home, your retirement, very few assets really have that much value in and of themselves, unless you're ultra wealthy, in which case you don't really have that many problems, but something like this, you're right, Seth. The emotional value placed on a pension for somebody who's a police officer or firefighter who's risked their life for that pension, it's limitless. They'll do anything to keep it.
Pete Wright:
Wow. Okay. So that is not, I don't want to say not jurisdictional, there's still jurisdiction, but the municipality rule is something that people listening in, other places should be aware of.
Matt Lundy:
Absolutely.
Pete Wright:
Okay.
Seth Nelson:
So here's how you solve some of these problems.
Pete Wright:
Yeah.
Seth Nelson:
You solve them early. You get with your lawyer, so every listener out there, you need to ask your lawyer, "Are we dividing a pension or retirement plan, an IRA, a 401k, and if so, do how to do a QDRO?" It is so specialized, Pete, I don't do them. Matt's done 14,000 of them, so he can do it quicker and cheaper than I can do it in-house. So we always tell our clients at the front end, and even in my engagement letter to my clients, it says, "I don't do QDROs." The ones that actually read the engagement letter will be like, "What's a QDRO?" And I'm like, "That's part of our conversation. Let's talk about it." So you have to start early identifying the actual legal name of the plan. What's going to happen? Get with someone like Matt, who knows what they're doing and get the language. Have Matt review the marital settlement agreement. If you're going to a trial and you have proposed language that you want the judge to rule on, work with Matt to draft the language, because it's going to save you problems in the end.
Matt Lundy:
As you know they have a shared interest in getting this done correctly because they have a shared interest in wanting to be done, so this becomes that one nagging thing that won't go away. So if everybody gets it right up front, then it should all fall on to me to just procedurally get it done, which can be annoying, which shouldn't be that big of a deal. If everybody understands and has the expectation that it will take months, we should be good to get it done, and it shouldn't be a problem. But of course, like I said, most of my job is spent in the problem area where if things aren't done correctly. I'm trying to figure out what people have, yada, yada, yada.
Seth Nelson:
Pete, you glossed over something that Matt said. I was a little surprised you didn't pick it up because you're usually right on it.
Pete Wright:
Good, COVID.
Seth Nelson:
I know you've been a little under the weather-
Pete Wright:
COVID, man.
Seth Nelson:
I know, a little under the weather.
Pete Wright:
I get to have that.
Seth Nelson:
Matt, you said you're licensed in five states.
Matt Lundy:
Yes.
Seth Nelson:
Does that mean you've taken five bar exams?
Matt Lundy:
No, I took three bar exams. I took Florida, Georgia and New Jersey.
Seth Nelson:
Okay.
Matt Lundy:
Being in your 30s when you take a bar exam in New Jersey and you're watching these kids sweat and you're just like, "Oh, get me out here. I have to get back to work," that's really something.
Seth Nelson:
I'm just asking, I don't know the answer to this question. How many bar exams has your brother taken?
Matt Lundy:
Three.
Seth Nelson:
Oh, you're tied-
Pete Wright:
It's three to three [inaudible 00:38:11]
Matt Lundy:
Florida, Georgia and New York, I like where you're going with that. I like where you're going with that.
Seth Nelson:
Yeah. He's licensed in three states, but you're in five?
Matt Lundy:
I am. I am, but I'm actually doing stuff in five, or four states. He's only doing Florida these days.
Pete Wright:
That's good. At least we just want to know where the notches are on your bookcase, on your law bookcase.
Matt Lundy:
I'll tell you, it's interesting because most family law attorneys and from practicing when I was working for my brother, we basically existed in three or four counties, Hillsborough, primarily, which is where Tampa is, and then Pinellas where St. Petersburg is, and a little bit in Pasco County and Hernando County, but primarily in two counties. Seeing the universe of family law attorneys across four states and three or 400 counties, it's amazing how different things are from place to place. Tampa is a wonderful place to practice family law. It's a really good community of lawyers who know each other really well.
I think your probability of finding a good family law attorney in Tampa is better there than in a lot of places. Then there are other places that are much more populated that are, frankly, full of attorneys who are like clamoring to just get whatever cases they can. It is bad luck for you, if you get a bad attorney, it really is. So get getting to the end of this process, like getting to me when you haven't hired a good family law attorney up front, there's a lot of stuff I can't do if you don't get it right up front.
Seth Nelson:
Let's talk about that a little bit. So Pete, for example, we have a statement. It says that there's $500,000 in the account, and if you say they're going to divide this account evenly as of August 12, 2022, and it doesn't get divided until October 2022 and the market went up, who gets the extra? If the market went down, do they both suffer? So the way you draft these is, it a set amount? The wife shall receive $250,000 as of this date period," or do you say the wife is entitled to 250,000 plus passive gains and losses from that date till the date it's finally given to her? That's called date of segregation. That can change it.
Matt Lundy:
In your conversation with Judge Tibbals, I believe he pointed out that there is the final judgment, but it's not really a final judgment that it's like the first final judgment, and then there's potentially continuing fighting. And that's an example of what he was talking about in that ... that was a really good podcast by the way, and basically, that's where those people are at. So in what you just described, if you were to ask me the question, say, "Matt, you seem to know something about retirement plans. What happens in that case?"
The answer is, if they don't work out a number between the two of them, they go to court and take an all-or-nothing position. One side's going to say he gets all the gains. The other side's going to say she gets all the gains or blah, blah, blah, blah, and it's basically a crapshoot because the law is not set up to deal with every single thing. It's supposed to be left to the parties to come up with agreements on things so you can avoid submitting every single issue to a judge. When you go to court on something like that, it becomes a real coin toss.
Pete Wright:
Coin toss or sledgehammer versus a scalpel, it just feels like court is blunt force trauma.
Matt Lundy:
It is. It is, because going back to what I was saying earlier, everything is everything. That person's not going to take that as a financial loss, they're going to take it as a loss to their former spouse. They're going to be mad at their former spouse, and they're going to be mad at this system and they're going to be mad at the lawyer who's representing them, even if their lawyer is brilliant. Something, Seth, that you said in the podcast with my brother also, because you said no matter what you do, and you're really smart, all joking aside, because I know someone's going to ring a bell soon if I keep complimenting you.
Pete Wright:
Well, eventually you'll just get muted, man. Just know that there are repercussions.
Matt Lundy:
If you've got a case against my brother and you're both really smart, you said it in the podcast, no matter what we do to prepare and no matter how well we perform, we have no idea what's going to happen. So in terms of having satisfied clients, which I think is the primary objective of most attorneys is to have satisfied clients and have a good business and be successful, it's very difficult to predict what's going to happen on something like that because there's really not a lot of great law governing this stuff if you enter into a bad contract.
Pete Wright:
How do you personally continue to do this and not just get jaded over the process?
Matt Lundy:
Who said I wasn't jaded?
Pete Wright:
I'm giving you an out. I'm giving you an out, man.
Matt Lundy:
So like I said, I think my training as a family law attorney prepared me for this different ... the other people that I know who do this, there's about 300 people nationwide who do what I do full-time. I've met some of them, strange group of people, very strange group of people and some more normal than others, but a lot of strange people, lot of mental cases going on. I don't think they approach this the way that I do. I don't see myself as a scientist or a mathematician. I think that the practice of law and getting things done in conflict is an art.
Like I said, the way that we talk to people, the way that I learn to talk to people and the way that I learn to engage in conflict and detach myself from it has helped me a lot with this, because there's a lot of fighting over this very acute issue, so it's grating to see the same issue over and over again. But I'm pleased to see that I can come in and make a positive difference for somebody at the end of their case, if they have the sanity to accept good advice. I read a statistic that one-third of men and one-half of women finish their divorces angry and remain angry for the rest of their lives. I think for a lot of those people when I run into them absorbing their anger, it is somewhat jading to be with angry people a lot of the time.
Pete Wright:
A third of men and half of women?
Matt Lundy:
Half of women, yeah. That comes from a book called The Lasting Impact of Divorce. Judith Wallerstein was the lady who wrote it. She basically followed kids around. That book actually changed my life. I have three kids, and when I had my third kid in 2016, I really, really developed conflict fatigue. I had a very difficult time engaging with the nastiness of the parties and a lot of the attorneys and frankly, a lot of the people that I'm competing against for what I do.
When I read that, I was mind blown and then it occurred to me that something much bigger is happening than the acute conflict that I'm in, that this is not a very well crafted process by 2022 standards. This process makes a ton of sense 40 years ago the way we do divorces now, and the way people, their anger gets ratcheted up and ratcheted up and ratcheted up. With everything that we know now and all the data that we could be collecting, but we don't collect any data, we should probably be shifting the way that we're doing things. So people are less angry by the time they get to the end of their divorce. Can you think of any service that you pay this much money for where you get angrier as the process goes on?
Pete Wright:
Wow.
Seth Nelson:
I'm going to put out a word here that's important to help the lawyers, because there's a lot of people that do QDROs that are not lawyers, and we need to be very careful with that. So as a lawyer in Florida, I have malpractice insurance. It's not even required to have, I have it. If I have my client or if I hire a non-lawyer to do this QDRO and it gets messed up and there was malpractice involved, I'm responsible. So think about this, Pete. I do a QDRO.
I hire a non-lawyer 10 years ago, that pension is not being actually paid out for 20 years because it was another 20 years till the guy or spouse was going to retire, and 20 years from now, they figure out that the person that I hired to do the QDRO, got it wrong, they're coming after me. So how do you avoid that? I state very clearly I do not do QDROs. I state in the document who's going to do the QDRO, that they have to hire them separately. Matt sends them their own retainer agreement. He's done 14,000 of them. He knows what he's doing, and I'm out.
Pete Wright:
So you won't hire it. You won't even sub out the service. It is a completely separate arrangement.
Seth Nelson:
It is a completely separate contractual arrangement that my client will have with Matt Lundy. Absolutely. That's why you want someone that knows what they're doing, because you are not going to find out if it's a pension, for example, for many years down the road.
Pete Wright:
Yeah.
Seth Nelson:
And that's a whole nother problem. Then the third of the people that are women or men and half the people that are, are still mad are now even madder.
Pete Wright:
Well, and now that's the snake eating its own tail. Like they're even madder because they've never been able to let go of this thing that you can't let go of for years and years and years and years and years,
Matt Lundy:
I've got one right now with two really good attorneys in Miami, very high- end, very well-known attorneys in Miami. They basically entered into an agreement for their clients 14 years ago saying that they would wait until the people retire and make sure that one transfer is made so that they're getting the same amount of money every month between their pensions and their social security, which is complicated, because those are moving targets, right? Social Security changes with cost of living adjustments, so does their Foreign Service pensions. So what happened is these people were super angry, so they couldn't enter into a specific marital settlement agreement. The more broad people's marital settlement agreement is, the more you can tell that they're either very cool with each other or extremely hostile with each other. So they had forgotten about it and moved on 14 years later, they've reopened their divorce and they're just as angry as they were 14 years ago doing it again, and they can't resolve things that way.
Pete Wright:
That's sad. I feel for those people that is really sad.
Matt Lundy:
Yeah.
Seth Nelson:
So Matt, we always do a plug at the end of the show to let people know how to find you, but what would your advice be to someone listening to this if they hadn't heard about you, because obviously it's just called you to help you with this? But how do people find qualified people to do their QDROs qualified attorneys? I should be more specific.
Matt Lundy:
It starts with finding a good family law attorney. That's what it starts with. You know that, this process is all about lucking in, unfortunately luck is probably the word, to getting the right family law attorney. That's most likely how you're going to find me is through a good family law attorney, and to remember if you're listening to this that you are the driver in your own family law case, that for all of the complaining in the universe about how bad our system is and the mechanics of our system's set up, the fuel for that system is the participants, so you need to make sure that you're actively participating in your divorce. If you're listening to this to say, who are the people that you use for QDROs for your family law attorney now, one, so I'm here, and to make sure that you get started with that process, just like Seth said early on. Don't wait till the end to sort it out.
Pete Wright:
This has been very helpful. I expected it to be dry, and honestly I'm a little sad now after this conversation, but I have learned something and I hope everybody listening has learned something as well from the brilliant Matt Lundy.
Matt Lundy:
Oh, thank you.
Pete Wright:
It's seriously educational. I thought, "Seth's off his rocker, wants to do a whole episode on retirement plans. What could we possibly have to talk about?" I'm, once again, proven wrong, a lot of value here.
Seth Nelson:
Well, that's only because you're right more often than you're wrong, Pete.
Pete Wright:
It's the house I live in, man. It's the house I live in. This has been great. Matt, what's your website.
Matt Lundy:
It's M as in Matthew, lundylaw.com, mlundylaw.com.
Pete Wright:
Outstanding. We will put that in the show notes. Seth, any final notes from you? Are we done? Can we put a fork in it?
Seth Nelson:
We can put a fork in, but I just want to thank Matt because this can get very complicated and very emotional when you already thought you were done. So it picks off the scab, it puts salt in it, you'll rub it around, it's bad. So for him to be-
Pete Wright:
For decades.
Seth Nelson:
For him to be able to come on the show and explain what some people will view as a dry topic, some step-by-step things that you can do. So when you are done, it's just more of an administrative process that Matt can handle for you, that's the way to go.
Pete Wright:
Well, thank you again, Matt. Thank you, everybody, for downloading and listening. Don't forget, if you have any specific divorce questions, head over to howtosplitatoaster.com. You can ask us a question. Right there is a button. You click the button. It says, "Hey, go ahead and enter your question here," and we'll address it on the show. If you have any questions about QDROs send them in, let us know. Don't go to Reddit, come to the podcast. That's the message I want to leave you with, no Reddit. Come to How to Split a Toaster. We love you here on The Toaster. Thanks to Matt Lundy and America's favorite divorce attorney, Seth Nelson. I'm Pete Wright. We'll catch you next week right here on How to Split a Toaster, a divorce podcast about saving your relationships.
Speaker 4:
Seth Nelson is an attorney with NLG Divorce and Family Law with offices in Tampa, Florida. While we may be discussing family law topics, How to Split a Toaster is not intended to, nor is it providing legal advice. Every situation is different. If you have specific questions regarding your situation, please seek your own legal counsel with an attorney licensed to practice law in your jurisdiction. Pete Wright is not an attorney or employee of NLG Divorce and Family Law. Seth Nelson is licensed to practice law in Florida.
