Divorce can be very stressful, even if you’re 100% positive it’s the right thing to do. Even still, you’ll have to face child custody (where applicable) issues and property and debt division, which can be complex to navigate.
Nevada is a community property state, which means that all assets and income acquired during a marriage are owned equally by both spouses, regardless of who earned the income or whose name is on the title. However, it is possible for a divorcing couple to deviate from a 50/50 split if they can reach an agreement. In these situations, it’s important not to act rashly because it can result in an imbalance of assets between you both.
Splitting Retirement Savings
Retirements savings like a pension or an employer-sponsored retirement plan, such as a 401(k) are treated like any other asset in a Nevada divorce – they are no different than cash in a bank account or a marital residence. For many of our clients, their retirement savings is one of the most valuable assets they have; therefore, they can be an important issue in a divorce proceeding.
It’s important to note that careful consideration must be given to dividing a retirement account, especially since it can be subject to tax implications. For this reason, retirement accounts have to be handled properly otherwise valuable money can be lost.
If you’re getting a divorce and your spouse has a 401(k) or pension, by law, you’re legally entitled to part of it unless you have a prenuptial or postnuptial agreement which says it shall remain separate property. But it works the other way around; if you have a 401(k) account, your husband or wife is legally entitled to a part of it.
Qualified Domestic Relations Orders (QDRO)
What if your spouse has a 401(k) and you don’t? What is going to stop him or her from cashing out their account and leaving you with nothing? The answer lies within a Qualified Domestic Relations Order (QDRO), which can protect you in the event of a divorce.
A QDRO is a court order or a decree that pertains to property rights, including an employer-sponsored retirement account. A QDRO protects a spouse by dividing qualified retirement assets between the owner and their spouse or former spouse or their children.
Once the transfer is complete, the recipient takes full ownership of their share of the retirement assets, meaning, he or she will have to pay the tax on any distributions they withdraw from the account after receiving the funds.
To learn more about QDROs in a divorce, and what it takes to avoid taxes and early withdrawal penalties, contact Ford & Friedman today.