IN THIS ISSUE:
A common asset in a marital dissolution proceeding is the Employee Stock Ownership Plan (“ESOP”). An ESOP is a specialized employment benefit in which the corporate employer makes contributions of either cash or stock to a trust for its participant employees. The employees are then allocated a pre-determined amount by percentage in direct proportion to the employee participant’s compensation.
The ESOP contributions are not taxable to the employee/participant until withdrawn from the ESOP by the employee.
There are two main types of pension plans available from corporate employment: 1) A Defined Benefit Plan (“DBP”), in which the employee is entitled to receive a specific sum upon retirement, either based upon a monthly sum or a percentage of salary; and 2) the Defined Contribution Plan (“DCP”), in which the employer makes recurring contributions and the employee’s withdrawal entitlement is largely dependent upon performance of the DCP. DCPs almost always take the form of Profit Sharing Plans, 401(k) plans, Money Purchased Pension Plans, and ESOPs.
When a party to a marital dissolution proceeding is a participant to an ESOP, there is not only a potential community property interest in the ESOP. If the ESOP pays dividends directly to the participant/party, those dividends can also be income available for support.
In order to properly divide an ESOP or any other DCP or DBP in a divorce, the account should be valued by either an accountant or an actuarial skilled in valuation. A DCP is not valued the same as a DBP. If the parties want to award the ESOP or other such plan to the employee spouse in exchange for the non-employee spouse receiving other property (called an “in-kind” division), it must be borne in mind that the value on any given statement does not take into consideration the future tax consequences to the recipient, nor is an account’s value guaranteed in the future. Thus, pre-tax assets should be valued against other pre-tax assets, and post-tax assets should be valued against other post-tax assets, or adjustments should be made to compensate for the future tax liability.
If the parties choose to divide the account, a qualified domestic relations order (QDRO – “qua-dro”) will be needed. A QDRO is a legally binding order that sets forth the non-employee’s interest in the account. The QDRO usually includes a survivorship provision to protect that non-employee’s interest in the event of the death of the employee spouse, and binds the plan administrator to divide the account as stated in the QDRO. A QDRO should be prepared by an attorney that is experienced in the drafting of such orders. Most companies have “model QDRO’s” available in the event of divorce. However, blindly following a model QDRO without the drafter knowing the significance of certain provisions can prove disastrous at a later time.
If you are considering a marital dissolution, or have additional questions about dividing ESOPs or other employee benefits in a divorce, you can reach our team by calling 949-345-1621 or by completing a short online contact form. Flexible appointments are available by request.
By: Shane Singh
In late 2009, continuing a fight against “rip-off artists” operating in California, then Attorney General Edmund G. Brown, Jr. filed suit against eight individuals and six businesses that operated scams targeting small business owners. The lawsuits, filed in San Diego Superior Court, sought to recover more than $3 million. “These cases will send a powerful signal that small business owners must be on the alert,” Brown said at the time. “These rip-off artists sent official-looking documents through the mail for the sole purpose of duping small business owners into paying them money – for no value in return.”
Despite the notoriety these scams upon business owners have received, the perpetrators continue to try to work them on the public. Small businesses should be aware of these tactics. The San Diego cases were separate scams, but each follows a similar theme. The defendants mailed to small businesses solicitations that appear to be government documents, featuring an official-looking seal, an official-sounding name, citations to the Corporations Code and a “reply by” date. The forms claim that the business is in danger of losing its corporate or limited liability status if payment is not made within a short period of time.
Since 2004, the Attorney General’s Office has received more than 5,000 complaints against a growing number of individuals who mail solicitations made to look like governmental forms to small businesses in California. Some of our clients report that they are continuing to be targeted by these scams. Any business owner receiving such a solicitation should be highly suspicious. Shane Singh at Kring & Chung’s Sacramento office is experienced with these mailings, and is available to discuss with you any such solicitations that your business may receive.
Kring & Chung attorneys Roland J. Amundsen and Matthew A. Reynolds recently represented a crane company in a jury trial relating to an accident in which a 108 foot long, pre-cast concrete I-girder weighing 73,000 pounds broke in mid-air at a job site, causing numerous injuries to the Plaintiff. Plaintiff claimed back, shoulder, head, and hand injuries, as well as loss of employment for over five years. Despite these injuries, and the fact that Kring & Chung’s client was carrying the beam at the time of the accident, our client received a complete defense verdict with a finding of no liability. The jury awarded Plaintiff $1,600,000 as against the other defendants.
The case involved a number of highly technical issues that could easily have confused a jury. Lead trial counsel Roland J. Amundsen simplified the case for the jury. Another defendant’s attorney commented that Amundsen’s closing argument was the best made at trial.
Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.