How Do Arkansas Courts Divide Retirement Accounts During a Divorce?
Retirement accounts can represent years of savings and a significant part of your financial future. During a divorce, you may wonder how much of your retirement your spouse could receive, whether you have a right to benefits in your spouse's name, or what happens to savings accumulated both before and during your marriage.
In Arkansas, courts divide retirement benefits as part of the overall property division. The court first determines which retirement interests are marital and which are nonmarital. If you or your spouse receives part of the other's retirement benefits, the account type affects how the court carries out the award.
At Vernetti Law in Bentonville, Arkansas, we represent clients in divorce and property division matters. We can review your retirement benefits, address disputes over marital and nonmarital property, and advocate for your financial interests. Contact us today to discuss your divorce.
Arkansas Courts Determine What Is Marital and Nonmarital Property
Retirement benefits you or your spouse acquired during the marriage generally qualify as marital property unless an exception applies. This can be true even when only one spouse's name appears on the account.
Retirement savings you acquired before marriage are generally nonmarital, as is the increase in value of that premarital property. This means one retirement account can contain both marital and nonmarital interests.
For example, if you had retirement savings when you married and kept contributing afterward, the marital contributions don't automatically make the entire account marital property. The court must distinguish the premarital interest from the portion acquired during the marriage.
Financial Records Can Help Establish What Is Marital
If your retirement account contains both marital and nonmarital funds, financial records can help distinguish them. Relevant documents may include account statements, contribution histories, employment records, and retirement plan documents.
The type of plan also matters. A 401(k) or other defined contribution plan has an individual account whose value reflects contributions and investment results. A defined benefit plan, commonly called a pension, generally promises future payments based on a plan formula.
We can review these records to identify disputed retirement interests, especially if you owned the account before marriage or contributed over many years.
Arkansas Generally Starts With an Equal Division of Marital Property
In Arkansas, property division during divorce generally starts with a 50/50 division of marital property. However, a judge can divide marital property differently if an equal division would be inequitable. The court can consider factors such as:
The length of your marriage
Each spouse's age, health, occupation, income, skills, employability, assets, debts, and financial needs
Opportunities to acquire future assets and income
Contributions to marital property, including homemaking
Federal income tax consequences
If the court divides marital property unequally, it must explain its reasons. Arkansas courts focus on an equitable overall distribution rather than requiring mathematical precision in dividing every asset.
Your spouse, therefore, is not automatically entitled to half of your entire retirement account. The court first determines which retirement interests are marital before deciding how to divide them.
What Happens to Retirement Property You Owned Before Marriage?
Retirement savings you accumulated before marriage are generally nonmarital property and are typically returned to you in a divorce. Courts generally treat the premarital portion of an account separately from contributions made during the marriage.
However, courts still have authority over non-marital property. An Arkansas court can divide premarital property differently if it finds that doing so would be equitable given the parties' circumstances. The court must explain its reasons for that decision.
Records showing the account's value and contributions can help establish how much of your retirement interest existed before the marriage.
How Are Retirement Benefits Actually Divided?
Retirement benefits are divided by assigning the former spouse the share awarded in the divorce, which may be a percentage or specific amount. How the former spouse receives that share depends on the type of retirement plan.
For many employer-sponsored plans, you may also need a Qualified Domestic Relations Order (QDRO). A QDRO instructs the plan to recognize the former spouse's right to the awarded benefits and identifies the amount or percentage to be paid.
The plan administrator reviews the QDRO for compliance with federal requirements and the plan's rules. Those rules can affect when and how the former spouse receives the benefits, so an award does not necessarily result in an immediate cash payment.
We can review the retirement plans involved and determine what additional orders may be needed to properly carry out the division.
Are IRAs Divided Through a QDRO?
No. You do not use a QDRO to divide an IRA. Separate federal rules govern transfers of IRA interests between spouses or former spouses in connection with divorce.
If the transfer meets federal requirements, an IRA interest can be transferred to a spouse or former spouse without treating the transfer itself as taxable. This may involve changing the name on the IRA or transferring assets directly to the former spouse's IRA.
Simply withdrawing the money and paying your former spouse is different. A traditional IRA withdrawal used to satisfy a divorce obligation is generally taxable to you and may also trigger the 10% additional tax if you are under age 59½ and no exception applies.
Tax Consequences of Dividing Retirement Benefits
Dividing retirement benefits does not always create an immediate tax bill. The consequences depend on the type of account and how the benefits are transferred or paid.
For certain employer-sponsored plans, a former spouse receiving benefits under a QDRO may be able to roll the money into another eligible retirement account and postpone income tax until taking taxable distributions. Certain QDRO distributions may also avoid the 10% additional tax on early withdrawals.
A properly completed IRA transfer between spouses or former spouses can also be tax-free. However, withdrawing the money instead can trigger income taxes and, depending on the circumstances, an additional early-distribution tax. How you carry out the retirement division can therefore affect how much of the savings you ultimately keep.
Talk to Us About Retirement Division in Your Arkansas Divorce
Retirement benefits can be among the most valuable assets in a divorce. Identifying the portion subject to division, documenting any premarital interest, and properly carrying out the final award can help protect the retirement benefits you are entitled to keep or receive.
At Vernetti Law in Bentonville, Arkansas, we represent clients throughout Benton County and Washington County. Our divorce attorney, Bryan Vernetti, has experience in divorce and domestic litigation. We can review the retirement benefits and other property involved in your divorce and address disputes over their classification and division. Contact us today to schedule a consultation.