Couples in New Jersey who are getting a divorce can end up with unpleasant surprises if they divide their retirement assets in the wrong way. To avoid high penalties, unexpected tax bills and an ex-spouse receiving a higher share than intended, it is important that spouses are aware of how different retirement accounts should be treated.
For workplace retirement plans, like a conventional pension plan or a 401(k) account, a qualified domestic relations order is needed for the receiving party to gain access to their share. While the QDRO is based on what is stipulated in the divorce decree, it is a separate legal document. The administrator of the plan should be contacted to make sure that the proper steps are being taken and the transfer is executed without a glitch. Furthermore, the legal document should be carefully reviewed by a divorce attorney before being filed with the court.
A recipient of 401(k) funds, whether the funds are distributed to them directly or rolled over into an IRA, should not agree to changing beneficiaries before the finalization of the divorce. If the spouse allows the account holder to remove their name as beneficiary and the account holder dies before the finalization of the divorce, the spouse may not have legal rights to the 401(k) funds.
A divorce attorney may litigate to protect the rights and interest of a client during disputes regarding property division. Legal counsel could verify the proper procedure to follow when dividing certain types of retirement assets, such as 401(k)s.