When going through a divorce, it is necessary for the couple to split their assets. Since retirement assets often make up a significant portion of these assets, one of the most commonly asked questions is how they are divided during a divorce. The answer to the question is very complicated, but it is a good idea to understand the basics of property division in this area during a divorce.
Under New Jersey law, retirement accounts, along with other marital property are divided according to the principles of equitable distribution. This means that, rather than dividing the assets 50-50 in most cases, a court will consider a number of factors when determining how the assets (as well as debts) are to be divided (assuming that the parties cannot reach their own agreement regarding this). These factors include: the length of the marriage, the economic circumstances of each party, the age and health of the parties, as well as any contributions made by each spouse towards helping the other along in his or her career.
Means of distribution
Once the court has made a decision (or an agreement between the parties has been reached) regarding how the retirement assets and accounts are to be divided, a Qualified Domestic Relations Order (QDRO) will likely be used. A QDRO is an order from the court instructing the retirement plan to make a distribution of a certain percentage or designated specific amount to the spouse. Once the spouse receives the funds (immediately or sometime in the future), he or she is generally responsible for taxes and other obligations arising from it. QDROs are used for division of both defined benefit plans and defined contribution plans which include:
• 401(k)s and 403(b)s
• Employee stock ownership plans
• Profit sharing plans
• 457 plans
• Certain tax-sheltered annuities
• Other “qualified” plans under ERISA
QDROs are not used to divide certain retirement assets. For example, IRAs, deferred contribution plans, government and military pensions, and another non-qualified plans under ERISA. Instead, a court order or settlement agreement determines how (and whether) these assets are to be divided in the divorce.
Have retirement accounts? Get legal advice
Dividing retirement accounts in a divorce is a very complicated process full of potential problems if not done correctly. Aside from the question of what each spouse is entitled to, there are important questions of tax implications, valuation of retirement assets, timing of distributions and whether there will be survivorship benefits if a spouse dies before his or her retirement. Because this aspect of divorce is very complex, it is vital to have the assistance of an experienced family law attorney throughout the process to ensure that the many potential pitfalls are avoided.