3.26 Ark. Code R. 51-307

Current through Register Vol. 49, No. 10, October, 2024

Rule 3.26-51-307 - Divorce

A taxpayer's interest in an ex-spouse's employment-related retirement plan or program acquired through a divorce is eligible for this exemption only if the interest was awarded pursuant to a qualified domestic relations order (QDRO). IRC Sec. 402(e)(1)(A) requires that an alternate payee (i.e. taxpayer), who is a former spouse of a retirement plan participant, be treated just like the participant with respect to any payments made to the alternate payee under a QDRO. Note that Arkansas has adopted Sections 72, 219, 401-404, 406-416 inclusive, and 457 of the Internal Revenue Code of 1986.

Example:

1. Mary was divorced from James by a Decree dated May 4, 1993.

2. As a part of the property settlement contained in the Decree, Mary was awarded an interest in James' 401(k) retirement plan pursuant to a qualified domestic relations order (IRC Sec. 414(p)).

3. Mary received $7,000.00 from James' 401(k) retirement plan in 1994.

4. Although Mary would report $7,000.00 in the gross income section of her Arkansas individual income tax return for 1994, she would be entitled to the $6,000.00 exemption and would pay income tax only on the $1,000.00 balance of the distribution.

3.26 Ark. Code R. 51-307