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Do you know enough about the division of retirement accounts? - II

A few weeks back, we discussed how, contrary to popular belief, the most valuable asset owned by many married couples -- young and old alike -- is typically their retirement accounts, including their 401(k)s and pensions.

We also began discussing how any couple looking to divorce should be aware that Arkansas is an equitable distribution state, meaning any retirement assets accumulated during the course of their marriage are fair game to be split in a matter deemed fair by the court, and how any division of retirement accounts must be undertaken with extreme care. 

What exactly is a Qualified Domestic Relations Order?

A Qualified Domestic Relations Orders -- or QDRO -- is essentially a judgment/decree from the divorce court directing a retirement fund or pension plan administrator to separate, withdraw (without penalty) and deposit a certain amount of funds from an account belonging to an employee into a retirement account owned by the non-employee's spouse.

In other words, it provides retirement fund or pension plan administrators with the necessary instructions on how to divide retirement assets in the event of a divorce.

Do QDROs apply to all retirement accounts?

No. QDROs are not required to divide IRAs or a Simplified Employee Pension (SEP) plan. Furthermore, government and military pensions are covered by their own set of rules when it comes to property division and divorce.

What type of information do QDROs need to contain?

While a complete breakdown of the otherwise complex requirements governing QDROs is clearly beyond the scope of a single blog post, the Employee Retirement Income Security Act of 1974 (ERISA) provides that a QDRO must contain the following baseline information:

  • The names and last known mailing addresses of the employee spouse and non-employee spouse (i.e., the alternate payee)
  • The name of the retirement plan from which funds will be transferred
  • The percent, dollar amount or calculation method to be used to determine the amount paid to the alternate payee
  • The number of payments or the timeframe in which payments must be made to the alternate payee

We will continue to examine this intricate and important topic in future posts. If you have any questions or concerns about property division matters, please consider speaking with an experienced legal professional. 

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