If you or your soon to be ex-spouse has a 401(k), defined pension plan, IRA or other retirement account, chances are you will be dividing retirement accounts in your divorce. When doing so there are certain rules that you need to follow. This is true in any state. However, this article is based on Arkansas law and meant to offer advice for those filing for divorce in Arkansas.

Qualified Domestic Relations Order

Some retirement accounts, such as a 401(k), 403(b), or a defined pension plan require a special order to be entered (usually after the divorce decree) called a Qualified Domestic Relations Order. A Qualified Domestic Relations Order (QDRO for short) is an order that tells the retirement plan administrator how the funds in a retirement account are to be divided up between the parties. The order has special language in it that is required under federal law. The QDRO should be preapproved by the plan administrator before it is signed by the judge.

Dividing Individual Retirement Accounts (IRAs)

Individual Retirement Accounts (IRAs) do not need a QDRO to be divided between the parties. However, the divorce decree must clearly state which IRAs are to be divided and what percentage or dollar amount each of the divorcing parties will receive. The decree should also clearly state that the transfer of the fund from the IRA is incident to a divorce.

Avoid Taxes and Penalties

In order to avoid taxes and penalties it is important to follow the rules. You should never just withdraw money from your IRA or 401(k) and give it to your ex or put it in their separate account. You need to make sure that either you or your attorney give a copy of the court orders that set out the division of the retirement accounts to your financial institution or plan administrator. Oftentimes both you and your ex will also have to fill out forms with the plan administrator or financial institution to complete the transfer. This is especially so for the transfer of IRAs. The ex-spouse receiving a portion of the IRA must set up their own IRA for the funds to be transferred into.

Federal Retirement Plans

Federal Retirement Plans such as plans under the Federal Employees Retirement System (FERS), a Thrift Savings Plan (TSP) and military retirement, have their own set of rules and requirements that must be followed. Like 401(k)s and IRAs, it is important that these retirement plans are properly addressed in your divorce decree, and that the plan administrator (the federal government) is properly notified of the divorce and the division of retirement accounts between spouses. Like division of other retirement plans, it may be necessary to get the order dividing the plan approved by the administrator before it can be entered by the court.

Don’t Forget Retirement Accounts

Although they often make up a large portion of your wealth, it is common for the division of retirement accounts to be overlooked in a divorce. Don’t make that mistake. Make sure that when you are discussing property issues, you also discuss your and your soon-to-be-ex’s retirement accounts. Get up to date statements showing account balances. Once a division is agreed on and the divorce decree is finalized, make sure your attorney drafts and files a QDRO. Also make sure that the QDRO is sent to the plan administrator and that the decree or other order dividing the IRAs is sent to the financial institutions where the IRA accounts are located.

You may be surprised how many divorcing parties, and their attorneys, overlook this process only to find out years later (usually when one of the parties reaches retirement age) that the retirement was not properly divided.

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