When people in New Jersey decide to divorce, they may be concerned about the future of their retirement accounts. Many couples have saved a significant amount in their 401(k)s, IRAs and similar plans to the extent that these are often the largest assets held by a divorcing couple. As a result, the division of these funds can be a contentious issue; one survey of divorce attorneys found that retirement assets were one of the top three subjects of conflict during the end of a marriage.

The issue with dividing retirement funds in a divorce goes beyond reaching an agreement over property division, however. It is also important that the division takes place in accordance with existing law in order to avoid costly taxes and penalties that could significantly reduce the value of these accounts. In order to divide a 401(k) or other workplace fund such as a pension plan, a qualified domestic relations order, or QDRO, must be approved by the court. The plan administrator cannot divide these accounts on the basis of the divorce decree alone; instead, a spouse’s attorney must present a QDRO for approval to the court.

There are important things to keep in mind in this process. The divorce decree and QDRO should specify a percentage distribution as naming a specific number could lead to inequitable outcomes if there is a shift in the market. In addition, if the 401(k) funds will be distributed to a rollover IRA, this must be specified in the order.

People who are going through a divorce might be particularly worried about the potential financial impacts of the end of the marriage. A family law attorney may work with a divorcing spouse to achieve a fair settlement on a range of issues, including property division and spousal support.