When going through a divorce in New Jersey, spouses must divide their marital assets in accordance with state law. New Jersey requires an “equitable” distribution, and Section 2A:34-23.1 of the New Jersey Revised Statutes outlines 15 specific factors (in addition to “[a]ny other factors which the court may deem relevant”) that must be considered when deciding what is equitable under any particular set of circumstances.
4 Important Facts About Retirement Accounts and Divorce
This applies to all marital assets—including retirement accounts. But, retirement accounts present some unique considerations as well. With this in mind, here is a brief introduction to what you need to know about dividing retirement accounts in a New Jersey divorce:
1. Retirement Accounts May Constitute Non-Marital Property, Marital Property or Both
When going through a divorce in New Jersey, marital assets are subject to equitable distribution, but non-marital assets are not. In most cases, spouses’ non-marital assets will consist primarily of assets they acquired before their date of marriage, but also include assets that are inherited or gifts.
This means that if you fully funded your retirement account before the date of your marriage, then the entire account could be off of the table in your divorce. Alternatively, and more likely, if you contributed to your retirement account both before and during your marriage, then only a portion of your retirement account will be subject to equitable distribution.
2. There Are Different Methods for Valuing Different Types of Retirement Accounts
Different types of retirement accounts are valued differently for purposes of a divorce. Specifically, while defined contribution plans (i.e., IRAs and 401(k) accounts) are typically divided based upon their present cash value, defined benefit plans (i.e., pensions) are subject to different rules. As a result, while divorcing spouses can generally determine the value of defined contribution plans on their own, it will often be necessary to hire a qualified financial professional to determine the present value of a defined benefit plan. It is often also necessary to hire a qualified financial professional where only a portion of a defined contribution plan is marital in order to determine how much is marital (subject to distribution) because of market-related gains and losses.
3. There Are Alternatives to Dividing Retirement Accounts in a Divorce
When going through a divorce, dividing a retirement account is one option (assuming the account qualifies as a marital asset). However, there are other options as well. For example, in many cases, it will make sense for one spouse to keep his or her entire retirement plan in exchange for giving up his or her interest in another marital asset.
4. When Dividing a Retirement Account, It May Be Necessary to Obtain a QDRO
If the decision is made to divide a retirement account as part of the divorce process, it may be necessary to obtain a qualified domestic relations order (QDRO). This is a special type of court order used to direct a retirement plan administrator to distribute account assets to a divorcing spouse free from taxes or penalties.
Speak with a New Jersey Divorce Lawyer at Helmer, Conley & Kasselman, P.A.
If you are contemplating a divorce and would like more information about what you can do to protect your retirement accounts or other assets, we encourage you to get in touch. To schedule a confidential initial consultation with an experienced New Jersey divorce lawyer at Helmer, Conley & Kasselman, P.A., please call 877-435-6371 or inquire online today.