During a divorce, New Jersey courts must determine how to divide pension and retirement assets in a process called equitable distribution. These retirement assets are considered property acquired during the marriage and are divided fairly and equitably between the two spouses.
It is essential to note that “fairly and equitably” does not necessarily mean equally. In dividing any kind of asset, including retirement assets, the Court considers various factors to determine what is fair to each party. Contact an experienced family law attorney for more information about dividing pension and retirement benefits in a New Jersey divorce.
Types of Retirement Assets
Pensions and other retirement assets obtained during the marriage are considered marital property under New Jersey law which are subject to being divided in equitable distribution. Generally, whatever a spouse contributes to a retirement asset from the date of the marriage through to the filing date of a complaint for divorce is subject to being divided. Anything that a spouse contributed to a retirement asset prior to the date of the marriage or after the date of the complaint for divorce is exempt from being divided. Some examples of retirement assets that may be subject to being divided in equitable distribution include:
- 401(k) plans
- Traditional and Roth IRAs
- Public or private pension plans
- Thrift savings plans
- Profit sharing plans
- Other defined benefit plans
- Other defined contribution plans
There are generally two types of retirement plans: Defined benefit plans and defined contribution plans. A defined benefit plan, such as a pension, provides a specific payment to an employee when they retire based on their contributions to the plan during their years of service. A defined contribution plan, such as a 401(k), allows the employee to contribute to a plan in which investments are managed by the employer’s plan administrator.
An IRA is neither a defined benefit plan nor a defined contribution plan because it is not managed by an employer. With an IRA, a person invests their money in a fund managed by a financial institution that invests the money on their behalf with the objective of providing the maximum return on investment at the time of their expected retirement.
Pension plans and other defined benefit plans are more complex to divide fairly and may require the use of an actuary to determine the value of the marital portion of the pension. This is crucial because the only contributions to the pension plan that are subject to being divided are those that were made during the marriage, up to the date of the complaint for divorce. Without a proper determination of the marital portion of the pension, either too much or too little of the pension could be divided, and no one would know the proper value of the pension that is subject to being divided.
The Court prefers that couples negotiate and agree on a fair division of retirement assets instead of relying on the Court to make these decisions. However, that is not always possible. A skilled New Jersey divorce lawyer can help you through the process of dividing all retirement assets to ensure a just outcome.
What Is a Qualified Domestic Relations Order?
A Qualified Domestic Relations Order (QDRO) is a specialized court order that facilitates the division of defined benefit plans and defined contribution plans in a divorce without causing taxation or early withdrawal penalties. The QDRO also tells the retirement plan exactly what the marital portion of these retirement assets is so it is property divided. QDROs are usually prepared by a company that specializes in drafting QDROs. A QDRO is not necessary to divide an IRA. There will be no tax consequences or early withdrawal penalties as long as the Court’s judgment of divorce or the parties’ divorce agreement specifies that the IRA is being divided as part of a divorce.
Speak to a Skilled New Jersey Divorce Attorney About Dividing Pensions and Retirement Assets
Determining how to divide pensions and other retirement assets is a complex process, and attempting to do it without the assistance of a professional can be overwhelming and usually leads to critical mistakes that can cost many thousands of dollars in the end. Knowing the law and procedures for dividing retirement assets is crucial for protecting your interests.
Contact a qualified family law attorney experienced in dividing pension and retirement assets in a New Jersey divorce to review your case and learn more about the process.
