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Dividing retirement accounts in divorce

Divorcing people in New Jersey need to understand that the portion of their retirement accounts accumulated during their marriage is subject to division. Under the law, amounts that accrued during the marriage are considered to be marital property. Each different type of retirement account has its own rules, so it's important for people to understand the differences.

For 401(k) accounts, employer-sponsored retirement plans and pensions, a Qualified Domestic Relations Order must be filed with the plan's administrator. A QDRO tells the plan how to divide the funds, and it prevents the assessment of early withdrawal penalties and taxes on the amount withdrawn to pay the recipient. IRA accounts require a transfer incident form for the same purpose. People who have multiple accounts will need to file separate forms for each account held.

Recipients may choose to roll over the amount into their own retirement accounts. They may also elect to leave it in their spouse's account to grow until they are of retirement age. They may also take it as a lump sum withdrawal, although they should avoid doing so so they can have sufficient money to retire themselves.

Accounts won't be subject to division if there is a legally valid prenuptial agreement in place in which a party has waived the right to the division of retirement accounts. Without such an agreement, however, people should assume that their accounts will be divided. Like other financial matters in a high-asset divorce, determining the portion that should be divided may be difficult. People may benefit by seeking the help of a family law attorney who may help determine the portion that should be divided or in some cases negotiate a different amount to be paid.

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