Deciding how to distribute financial assets in a Rhode Island divorce proceeding can be complicated for some couples. One specific common issue with dividing assets is when one spouse has a significant retirement account. Contributions to the account for the duration of the marriage is effectively marital property, but neither spouse typically wants to reduce the account value in any significant amount. This means that the couple will need to reach some type of compromise through a divorce settlement or request the court to issue a qualified domestic relations order.
All retirement accounts state directly in their terms that a QDRO could apply when issued by a court as alimony. Beyond being claimed by a spouse or ex-spouse, a dependent child can also file a claim under certain circumstances when the court deems necessary.
Having a QDRO issued following a divorce can save considerable resources for many couples. Any withdrawal from certain retirement accounts will typically come with a 10% penalty for removal before the primary account holder reaches the age of 59 1/2, but a QDRO will exempt the additional claimant from the penalty.
Court order is mandatory
Claims made on the retirement account outside of a divorce decree order will void the exemption for a 10% penalty. All primary retirement account holders should be aware of this if they attempt to settle the issue outside of the divorce proceeding. Plus, the primary account holder must make the request in this situation. The order is typically part of the total property distribution allocation, but can be a component of child support as well.
A primary account holder should not make the withdrawal arrangements outside of the court order due to the financial penalty, as it benefits all parties. Additionally, some retirement accounts have other restrictions that could impact any withdrawal.