Assessing Retirement Funds and Restricted Stock Units during a Divorce in New Jersey

During the course of a marriage, it is common for spouses to contribute to retirement accounts, which are usually considered marital assets. When a couple decides to divorce, the money that they have each saved for retirement may be subject to the property division process.

This process can be quite complex, and it is important to take every possible measure to ensure that you receive your equitable share of retirement accounts. If you are currently facing this situation, let a property division attorney explain how retirement funds are typically assessed and distributed during a New Jersey divorce.

Dividing a 401k in an NJ Divorce

A 401k is a defined contribution plan that requires a person to contribute a portion of their salary to their retirement savings. The amount of money from retirement funds that each spouse will be entitled to will depend on the length of the marriage. In terms of distribution of a 401k, a spouse will usually be entitled to a portion of what was contributed to the account during the marriage.

It is not recommended to cash a 401k before a divorce, as it is divisible in the legal proceedings. There are also extensive penalties and tax consequences if someone removes money from their account when they have not reached the appropriate retirement age.

Impact of Distributing Pension Funds

A pension is a retirement plan that requires an employer to make contributions to a pool of funds that is set aside for a worker’s future benefit. As the employer is making contributions, the funds are invested on the employee’s behalf, and the earnings on the investment generate income to the worker upon their retirement.

During a divorce, a spouse’s pension will be valued, and a separate entitlement will be created for the other spouse. This entitlement will be created under the same terms as the original pension, and the spouse will receive that payout once the pension is eligible, meaning when their former partner is of retirement age. Alternatively, a present-day value can be assigned to the pension, which can be used to calculate a cash buyout of the portion of the pension going to the other spouse. In order to ascertain what the actual value is, the pension will have to be appraised by a company that does pension appraisals, and a skilled NJ divorce attorney will be beneficial in navigating that process.

Restricted Stock Units

Restricted stock units are granted to an employee pursuant to a vesting schedule. Essentially, restricted stock units are a form of compensation that are issued by an employer to an employee as a form of company shares. Once the shares are issued, certain conditions have to be met in order for them to vest, which incentivizes the employee to remain with the company. Upon satisfaction of those conditions, the stock is no longer restricted, and it becomes transferable to the person holding the award.

The conditions can differ depending on an employer’s circumstances. For example, the worker may have to be employed in the company for a certain amount of years before the stocks can be translated into cash. That money would then be counted as income and are therefore taxable as such.

What Happens to Restricted Stock Units in a Divorce?

Restricted stock units are divisible in a divorce. However, it is crucial to know when they were granted and when they will vest. If restricted stock units were granted prior to the divorce, but vest at a later date, they can be divided under equitable distribution as an acquired asset.

However, if the restricted stock unit is granted during or after the divorce and vests after the divorce, they would be considered as part of the individual’s income as opposed to an asset. This can be a very complicated subject, and fully understanding it can require the help of a divorce attorney who is familiar with the nuances involved in dividing restricted stock units in New Jersey.

Ask an NJ Attorney about Dividing Retirements Funds and Restricted Stock Units in Your Divorce

Our team of attorneys has a great deal of experience in dealing with high net worth divorces. We are skilled in dealing with complicated financial issues, including deferred compensation, different types of benefit plans, and restricted stock units, and we can help you get the answers you need from forensic accountants or appraisers. If you have further questions regarding how to assess and distribute your retirement funds during your New Jersey divorce, contact our office today.

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