Finding Nemoh in Divorce

• Publication year: 2018
• Author: James M. Crawford, Jr.

Finding NEMOH in Divorce

James M. Crawford, Jr.

James M. Crawford, Jr. is an employee benefits attorney who for over 34 years has been assisting family law attorneys with the characterization, apportionment, and division of qualified and non-qualified retirement benefits and other forms deferred compensation. He has presented on the subject for various organizations, including the ACFLS, CEB, AAML, the CPA Society, California and Texas State Bars Advanced Courses, McGeroge School of Law, and the Judicial Institute of California. He is a co-author of the chapters on the characterization and division of employee benefits for CEB's Marital Settlement and Other Family Law Agreements, and for a similar publication of Matthew Bender; and has served as CEB's Sr. Editorial Consultant for Dividing Pensions and Other Employee Benefits in California Divorces. Mr. Crawford is also a co-author of "Crossover Issues in Estate Planning and Family Law," published in 2011 by CEB, and updated annually. Mr. Crawford has written a number of articles for the California and Texas bar associations regarding selected issues frequently encountered in QDRO practice.

Most family law practitioners are familiar with qualified retirement plans and the various methods for their division in divorce using a QDRO, but when it comes to finding and boating NEMOH, they are at sea.

Who or What is NEMOH anyway?

NEMOH, or Nonqualified Executive Money On Hold, is compensation for services that has been deferred for payment at a later date, other than under a qualified retirement plan. It is more familiarly known as nonqualified deferred compensation, or NQDC. Because NQDC plans do not satisfy the requirements of I.R.C. section 401(a), these employee benefits do not have the same tax advantages as those payable under qualified plans.¹ Nevertheless, if properly designed and administered, NQDC plans allow for the deferral of tax until the income is actually received.

NEMOH comes in many colors.

Because NQDC plans do not have to meet the standards for qualification under I.R.C. section 401(a), there is virtually no limit on what they look like, other than (a) no participating employee can be allowed to have an immediate right to the receipt of the benefits (the constructive receipt issue), (b) s/he may not have a right to receive payment that would trump the rights of a general creditor of the company in bankruptcy (the economic benefit issue); the rights must have no or limited assignability (the cash equivalency doctrine); and (c) the plan must meet the documentation and other requirements of I.R.C. section 409A.

NQDC plans typically fall into five main categories, either singly or in combination (as hybrids). These are:

1. "Top Hat" Plans (sometimes referred to as Supplementary Executive Retirement Plans or SERPs), which are intended to supplement the limited benefits payable to an executive under one or more qualified plans, because of section 401(a) restrictions on benefits, or upon the compensation that may be considered for benefit accrual. "Top Hat" plans are typically provided only to a select group of management or highly compensated employees in order to be...