Can an Arkansas Divorce Court Divide Retirement Accounts?

One of the most frustrating conversations that I have with divorce clients is about his or her retirement accounts. Everyone knows that you must split the house and the bank accounts and the debt, but it is offensive to most...

One of the most frustrating conversations that I have with divorce clients is about his or her retirement accounts. Everyone knows that you must split the house and the bank accounts and the debt, but it is offensive to most people when they learn that you may have to split your retirement during a divorce, too. Most of us have heard about the value of compound interest and how much we need to retire since we were kids. Our retirements are part of the American Dream. Our retirement accounts have a special, almost sacred status.

And that’s why it’s so frustrating when people learn that the money you contribute to retirement accounts during a marriage and the interest that you earn on it is marital property under Arkansas law. Since it is marital property, it may be divided by a divorce court.

Most retirement-type accounts fall into one of two categories: qualified accounts and pensions. Examples of qualified retirement accounts include IRA’s (both Traditional and Roth) and 401(k)s. A pension is a certain amount of money that you can expect to draw per month upon retirement. Both can be (and routinely are) divided in a divorce.

Qualified accounts are special accounts that have certain tax advantages. With an IRA, you get the advantage of either being able to put money in one without it being taxed or being able to put already-taxed income in one without having to pay taxes on the interest you earn. 401(k)s are special accounts that are provided through an employer. A pension is also usually a qualified account.

Note: If you have substantial assets in a qualified account, you need an estate plan.

It is important to know whether an account is qualified because it will require a certain special order of the court to make the division, which is called a Qualified Domestic Relations Order, or “QDRO.” (There are several different ways to pronounce that word, all of which sound ridiculous. Quad-row sounds like a big minivan and Cue-drow sounds like, well, an annoying actress.)

A QDRO is not difficult to draft, but it is tedious. A family lawyer needs to be very careful to get the details correct in the QDRO or it can have disastrous consequences for a client. Additionally, the companies that manage qualified accounts are terribly particular about the language in a QDRO. Sometimes getting them to approve one requires several drafts.

We know how to handle QDRO’s. If you are facing a divorce where there are retirement accounts to divide, you need to make sure that you hire someone with experience drafting QDRO’s that do what they’re supposed to do and will be accepted by investment companies. We have that experience, and if you’re about to begin the process of getting a divorce and have retirement accounts, give us a call and we’ll get to work on your case today.

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