As well-seasoned divorce lawyers, we created a series of blogs for those of you thinking of divorce in Arkansas. For information about Leigh Law’s Family & Domestic Law services, click here. We also answer several of your most common questions on our FAQ page.
What is a QDRO?
Closely related to the question, “What is a QDRO,” is asset division. We will discuss that in a separate article we will post next week.
QDRO stands for Qualified Domestic Relations Order. QDROs are used to divide retirement accounts. Retirement accounts are usually tax deferred. If you withdraw money from them before retirement age, then you have severe tax consequences. Tax free savings is great for retirement but causes problems when divorcing and dividing those accounts!
Beware the Tax Penalty!
Retirement accounts are not like regular checking or savings accounts. You can’t just divide the contents and go your separate ways without paying a big tax penalty. If you cash out a retirement account to split it, then the spouse whose name the account is in is hit with 100% of the tax liability while the receiving spouse gets away scot-free! Remember that divorces are governed by principles of equity. So one party taking the IRS hit is not fair or equitable, and that’s not how we do things.
Retirement Accounts Come in Many Flavors
Every retirement account is with a specific company, like Charles Schwabb or Edward Jones. There are also special considerations for railroad retirement (Union Pacific) or for state employees (Arkansas Public Employees Retirement System) or teachers (Arkansas Teacher Retirement System). You get the point. There are many different retirement account investment companies. Each company has its own special approved forms and required processes.
Who Has Jurisdiction Over Retirement Accounts?
A divorce is between two spouses. The divorce court has jurisdiction over only the two spouses, and does not have jurisdiction over a mother-in-law or a bank or a retirement account investment company. This means that the judge cannot tell Edward Jones what to do or what forms to use. The judge in your case cannot compel any retirement account investment company to change its policies and procedures in order to accommodate your divorce. (Read our blog post on jurisdiction in a divorce here.)
Drafting a QDRO and getting it approved can be very frustrating for the parties and the lawyers involved. Many attorneys do not want to handle QDROs for this very reason. They are complicated and time-consuming. Keeping with our business model of providing quality services at affordable prices, Leigh Law does handle QDROs, albeit separately from the divorce. In fact, many clients come to us after the divorce is final to handle the QDRO only!
Who Is Responsible For The Retirement Account?
The QDRO is the responsibility of the party who is receiving the money. Jumping through all the hoops including opening your own account for the funds to be deposited (so you don’t incur that big IRS penalty either), drafting and obtaining approval, then sending to the ex-spouse and the judge for entry can take weeks. But it’s worth it because you then have your own retirement account that you can grow and depend on in the future!
Crafting The Best Approach
Check out our discussion of asset division, coming next week. The global resolution approach, instead of an asset by asset approach, allows Leigh Law to serve clients the best and keep the necessary number of QDROs, with their related expense and time, to a minimum.
Call For A Free Case Evaluation
Case evaluations are completely free; our fees are flat and affordable. Call Leigh Law today at (501) 227-ROAR or Email Us to ensure that you are making wise decisions now which will last far beyond the entry of the divorce decree.