[bajans61]

My husband and I will be getting a divorce over the next few months. He has offered about 75,000 of his 401K. I want to roll most of it into my own retirement fund but take about 10,000 out to pay credit card debt and move back to Canada. I have dual citizenship. How will this affect my taxes after the divorce? Does he pay the penalty for early withdrawel or do I? Do I pay taxes on the part I roll over into my own retirement fund or will this be tax exempt? When I turn retirement age who do I pay the taxable income to the US government or the Canadian? How much will the taxes be on a 10,000 pay out?

[AtlantaTaxExpert]

To give a concise, accurate answer, I would need to know your overall financial situation.

Invest in getting advice from a local tax professional.

[ebaines]

First be aware that everything in a divorce is negotiable (pretty much), so details can vary. But in general - not sure why he offered $75K but all else being equal you are entitled to 1/2 of the amount of his 401(K) attributable to his contributions and earnings in the account (growth) that occurred during the marriage. That's a starting point for negotiations. As for what happens to the amount you are getting - it's a good idea to roll the amount to an IRA that will be set up in your name exclusively for this rollover - in other words don't attempt to mingle it with any pre-existing IRAs or 401(k)'s you may already have. The court will issue a "Qualified Domestic Relations Order)" (QDRO) which provides direction to the 401(k) administrator to make the transfer to your new account. The amount that is transferred is not taxed (neither income tax nor early withdrawal penalty, as long as the QDRO is properly drawn up). If you decide to withdraw $10K you should do that at the time of the transfer per the QDRO, as you have a one-time opportunity at that time to avoid the 10% early withdrawal penalty, though you (not him) will have to pay US income tax on the withdrawal

Here are a couple of good sites that describe the process: http://www.401k.org/401k-and-divorce and divorce360.com | Do You Really Know What Happens To Your 401k Now?