During a divorce, one of the most contentious but important issues that must be addressed is how property will be divided between the spouses. Most people focus on the marital home or bank accounts, but an important long-term asset that can be impacted is an individual’s retirement benefits. Because New Jersey follows the principles of equitable distribution, one spouse’s retirement savings could be divided between the parties. For more information and to obtain the help of a skilled legal professional, read on and speak with a New Jersey divorce lawyer today.
What is Equitable Distribution?
New Jersey is an equitable distribution state when it comes to property division in a divorce. This means that marital assets are divided between spouses based on what is fair and equitable, not necessarily an equal 50/50 split.
Equitable distribution is based on every aspect of the couple’s life, including the duration of the marriage, contributions made by either party, the income and earning capacity of each party, the age and health of each party, and more.
How Does Equitable Distribution Affect Retirement Savings in NJ?
Only marital assets are subject to equitable distribution in New Jersey. While you may believe that your retirement account is safe from this process if it is through your employer or if the account is under only your name, contributions or value added to the account are generally considered jointly owned by you and your spouse.
Because of NJ’s equitable distribution system, your spouse may be entitled to a portion of your retirement savings during your divorce. This can apply to employer-sponsored plans like 401(k)s and pensions, as well as individual retirement accounts (IRAs), and even military or government pensions.
Courts will typically determine the “marital portion” of a retirement account by looking at the date of the marriage and the date that the divorce petition was filed, the value of the account at the beginning and end of the marriage, and the growth and contributions made during that period. This calculation will yield the amount that is subject to equitable distribution. Then, based on the numerous factors relevant to the process, the court will decide the percentage that each spouse is entitled to.
How Are Retirement Benefits Distributed After a Divorce?
The actual division of retirement benefits can be complex. A QDRO (Qualified Domestic Relations Order) may be required for certain plans, like 401(k)s or pensions. This is a court-approved document that allows the division of benefits without resulting in tax penalties or fees for early withdrawal.
Other accounts, like IRAs, do not generally require a QDRO, and transfers can occur through a “transfer incident to divorce,” which can be included in the divorce decree. When done correctly, this transfer also prevents tax implications for both spouses.
Ensuring that the QDRO or required documentation is properly prepared is crucial in protecting your financial interests during your divorce. Work with a skilled attorney for legal representation and peace of mind during your case.
