How Does a Divorce Affect Nevada PERS and Other Retirement Accounts?
Money saved for retirement secures your future, but what happens to those future funds during a divorce in Nevada? What happens if a stay at home spouse is relying on the retirement savings of the working spouse, but the marriage does not last and the couple decides to divorce?
Retirement benefits, such as, pensions, 401(k)s, IRAs, and others are all subject to division as other property is during a divorce. Retirement accounts can be a large source of the overall property of the divorcing couple and can be used as a leverage point in negotiating the property division.
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Divorce and Retirement Benefits in Nevada
This article provides only basic information about how divorce will impact your retirement savings. It is not a substitute for consulting with a divorce lawyer. Only an experienced Nevada divorce attorney can give you legal advice about your situation.
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There are generally two types of retirement plans.
The first are defined benefit plans, which provide monthly income benefits upon retirement using a formula that factors in age, years of service, and salary. These are generally government, union, or company pensions. For divorce purposes a defined benefit plan is harder to value and may need to be appraised.
The second are defined contribution plans, which are based off the funds in the individual retirement account. Members make contributions to the retirement account and the return on their investment determines the amount of their retirement. Defined contribution plans include 401(k)s, 403(b)s, 457s, IRAs, Keoghs, simplified employee pension plans, deferred compensation plans, profit sharing plans, and stock saving plans.
Divorce and retirement benefits in Nevada are considered community property to be divided during a divorce. Community property is all the property acquired during a marriage by either or both spouses. Under NRS 125.150, it is presumed that community property should be divided equally among the parties and since retirement benefits are considered community property and therefore marital property each spouse should receive half of the other spouse’s retirement benefits that accrued during the marriage.
Some retirement plans, such as an IRA, are subject to a 10% tax if funds are withdrawn early. The IRS, however, may not tax the funds that are subject to a divorce order. Some retirement benefits are not marital property and are governed by federal law.
A Qualified Domestic Relations Order may be needed to split retirement benefits.
Qualified Domestic Relations Order
A Qualified Domestic Relations Order (QDRO) is an order from the court that orders payment of retirement benefits to be paid to someone other than the person contributing to the retirement plan.
The other person is called the alternate payee. After a court orders a QDRO the original QDRO or a certified copy of the QDRO must be submitted to the retirement plan’s administrator for approval. For a QDRO to be valid it must contain:
- The member’s name;
- The member’s mailing address;
- The alternate payee’s name;
- The alternate payee’s address;
- The amount or percentage of the funds to be distributed to the alternate payee;
- The manner the amount or percentage is to be determined;
- The number of payments or period of time the order applies to; and
- The name of the plan that the order applies to.
In Nevada, an alternate payee has a right to a portion of their ex-spouse’s retirement benefits once the retiree is first eligible for retirement, despite whether or not the employee retirees. Nevada has ruled that even if the employee ex-spouse does not retire he or she must pay the amount that would be due to the alternate payee if the employee had retired. Also in Nevada, if the alternate payee dies the benefits due to them under the ex-spouses retirement plan will carry over to the alternate payee’s estate.
Public Employees’ Retirement System
Nevada has its own retirement system for State employees known as the Public Employees’ Retirement System (PERS). In Nevada PERS retirement divorce is governed under Nevada statute NRS 125.155. Nevada PERS is a defined benefits pension program. If an ex-spouse has a public employee pension then the parties must have an order from the court entered under PERS.
Under PERS, unlike other retirement plans, the alternate payee will only receive payment once the employee spouse actually retires. The court, however, may order a bond or life insurance policy in order to protect the alternate payee’s interest in the pension.
Also, unlike other retirement plans, PERS payments will cease upon the death of either party. The order, however, may be drafted to include a survivorship clause in order to allow the payments due to the alternate payee to pass to the alternate payee’s estate.
Normally the value of a pension is not computed at the time of the divorce because the value may change, however, Nevada has ruled that this is not the case if the employee spouse has used extraordinary efforts to increase the value of the retirement account. The employee spouse holds the burden to prove that his or her extraordinary efforts led to the increase in value of the retirement account.
Federal Employee Retirement System
Federal employees that began a federal job before 1994 are members of the Civil Service Retirement System (CSRS). Federal employees that began working a federal job after 1984 have a Federal Employee Retirement System (FERS). Members of the FERS contribute to the Thrift Saving Plan, which is a defined contribution plan that can be easily calculated and distributed during a divorce.
Divorce leaves couples with many things to consider and what will happen to the retirement plans of the spouses is one of those considerations. It can be a scary thought that the funds a person has retained by working their entire adult life may be decreased because of a divorce. It is also a scary situation when one spouse has relied, for one reason or another, on the retirement savings of the other spouse for when neither can or chooses to no longer work. Division of retirement benefits is just one necessary step that must be taken in order for each spouse to move on to the next chapter of their lives.