Divorces between individuals who earned higher levels of income throughout a marriage tend to be more complicated than divorces among lower-income couples. After all, those who have accumulated substantial resources have more details to address in their divorce proceedings.
Couples enjoying six-figure household incomes or higher may have marital estates that include real property, investments and even deferred employment compensation. They may also have retirement savings that they expect should ensure their comfort later in life.
Some couples preparing for a more complex divorce process in Rhode Island need specialized documents to facilitate the division of their property. In some cases, spouses may need to have one of their lawyers draft a qualified domestic relations order (QDRO).
When they divide retirement savings
While many spouses have retirement accounts that affect the marital estate, not all couples in Rhode Island have to divide their retirement savings. In some cases, each spouse may have set aside a significant amount of money in their own retirement savings account or may have accrued pension benefits with an employer.
Spouses sometimes reach an agreement that allows them each to retain their personal retirement benefits and savings without actually dividing the accounts. Other times, even if there is only one source of retirement income, the spouses can offset the value of that asset through the division of other marital property and debts.
A QDRO is likely only necessary in cases where spouses need to divide tax-deferred retirement savings accounts as part of the property division process. A QDRO drafted in accordance with the property division order from the divorce can instruct the investment professional managing the account to divide it into two separate accounts with a specific percentage going to each account.
If spouses follow the process appropriately, a QDRO allows for the penalty-free division of a retirement account even if they have not yet reached retirement age. They can also avoid the income tax consequences that may follow a substantial withdrawal from a 401(k) or Roth IRA.
A QDRO requires effort after the finalization of a divorce. The document should reflect the final divorce decree. A QDRO requires approval from both spouses before they can use it to divide retirement savings.
Understanding that couples facing complex divorces can split retirement savings without diminishing them due to penalties and taxes could help people explore all of the options available. Spouses who use the right tools can minimize the negative financial impact a divorce can inspire.
