Division of Retirement
Accounts After Divorce
Retirement accounts represent one of the significant assets distributed among couples in a New Jersey divorce. If you and your spouse are divorcing, funds in a 401k or other retirement accounts to which you have contributed during the marriage are subject to equitable distribution. New Jersey laws address equitable distribution of retirement accounts between spouses getting divorced.
The portion of a retirement account acquired from the date of marriage to the filing of divorce is considered a marital asset and is subject to equitable distribution under New Jersey laws, regardless of whether it is filed under one spouse’s name or a joint account. A Qualified Domestic Relations Order, or a QDRO, is issued by the court to determine the division of certain types of accounts. Actuaries or companies specializing in QDRO preparation prepare these orders. QDROs order the financial institution that manages the account to distribute a certain amount to the nonparticipant spouse without penalty or taxes. However, the alternate payee, or the spouse to whom the account does not belong, is taxed when funds are withdrawn from the account. The types of accounts that QDROs can divide include pensions, employer-provided plans that pay the employee a fixed amount monthly during retirement and defined contribution plans, where the employer and employee both contribute to the plan and the value grows over time—these include 401(k), 403(b), thrift plans, and profit sharing plans, among others. Retirement accounts that do not fall under these two categories cannot be divided by QDROs, but rather are divided by present cash value. IRAs, for example, are usually divided equally if both spouses have similar-paying jobs or one spouse’s financial responsibility for alimony has left the couple at a similar income level. If one spouse has never had a job and is likely to struggle during retirement, that spouse is likely to receive half or more of the IRA. Additionally, the court will look at any premarital accounts that might be adequate to help you during retirement without a significant portion of your IRA and the way your spouse contributed to your account.
This is a lot of information to take in, so you should hire a family law attorney to guide you through the process and address any concerns you have along the way. These guidelines are not rigid and subject to change under certain circumstances. With the help of the team at RBY, you can claim your rights to your share of the money you have worked so hard to save.
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