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Do I really need to use a QDRO?

When getting a divorce in Las Vegas, using a Qualified Domestic Relations Order can help to avert some financial penalties.

Spouses in Nevada understand that a divorce can be a major financial event in a person’s life. Getting divorced can have negative impact on people financially. Some of this is unavoidable but there are things that can help to minimize or avoid some financial losses. The use of a Qualified Domestic Relations Order when using money in a 401(K), pension or employee-based retirement plan to satisfy child support, spousal support or property settlements is one such thing.

Receiving money from retirement plans

Because retirement plans are held in only one person’s name, that person alone can legally receive distributions from the account. In addition, distributions to the plan owner must meet retirement criteria in order to avoid certain taxes and penalties. What then happens when couples must split the assets in a retirement fund as part of their marital estate division?

The power of the QDRO

A Qualified Domestic Relations Order can help by establishing the other spouse as an authorized payee on the 401(K) account, pension or employee-based retirement plan. This allows money to be paid directly to that person with no tax liability to the account holder. The Internal Revenue Service states that the QDRO can be used not only for splitting accounts but for the payment of alimony or child support as well.

The U.S. Department of Labor explains that a QDRO can be used to make payments to ex-spouses, current spouses, children, and other dependents. For distributions made as part of a property division settlement, the spouse who receives the money may also avoid taxation by reinvesting the funds into another qualifying retirement account.

Life without a QDRO

Forbes notes that the failure to use a QDRO in certain situations can result in the assessment of taxes that otherwise may be avoided. One man learned this after he had already taken money from his 401(K) to make alimony payments. Because he did not use a QDRO, he was ultimately required to pay more than $5,000 in taxes. The tax bill amounted to 10 percent of how much the man took out of the account.

Proper legal counsel makes a difference

There are many small details that can make a big difference for divorcing spouses in Nevada. Things like obtaining the approval of a QDRO from a 401(K), pension or employee-based retirement plan administrator before, not after, a divorce is finalized matter a lot. Because it can be difficult for non-legal professionals to know all of these things, people are encouraged to always work with an experienced lawyer when getting divorced.