If you have a retirement account, there is a chance that it could be divided in a Nevada divorce settlement. This is because the asset is generally considered to be owned jointly with your spouse even if your name is the only one on the account. Let’s take a look at some important information that you should know about dividing an IRA, 401(k) or pension plan after a marriage comes to an end.
Don’t take money out before the divorce
Taking money out of a retirement account prior to a divorce can be problematic for a couple of different reasons. First, it may be seen as an attempt to deplete an asset that your spouse has an ownership interest in. Furthermore, regardless of what your intentions are, taking money out of such an account prior to formally dissolving your marriage might trigger a taxable event. If you are under the age of 59 1/2, you may also be assessed a 10% early withdrawal penalty.
You’ll need an extra document to divide a 401(k)
It’s important to note that you’ll need a qualified domestic relations order (QDRO) to avoid incurring penalties when dividing a 401(k). The QDRO tells the plan administrator that a withdrawal is going to happen, how much needs to be withdrawn and that it is pursuant to a divorce. If a withdrawal is rolled directly into another retirement account, it’s unlikely that it will be subject to ordinary income taxes. Your attorney will likely be able to provide more insight into what a QDRO is and how it should be drafted.
A divorce may have a significant impact on your ability to retire. In addition to losing a portion of your retirement savings, you may lose other assets that had significant value. An attorney may be able to help you craft a settlement that minimizes the financial damage that ending a marriage might cause.