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NJ.com recently looked at the question of dividing retirement accounts during a New Jersey divorce.
New Jersey is an equitable distribution state, meaning a fair and equitable division of assets is sought, both through mediation and, if no settlement agreement is reached, by the court. However it’s important to note that under New Jersey law “equitable” does not mean equal or “50/50.”
The court takes into account many factors in deciding what is equitable under N.J.S.2A:34-23, including duration of the marriage; age, health and economic circumstances of both parties; assets, income and earning capacity of both parties; tax consequences of division of retirement assets; and the extent to which either party deferred career goals.
When it comes to divorce and retirement, seeking the advice of an experienced Middlesex County divorce lawyer is among the best things you can do to protect your financial future.
Retirement Accounts and New Jersey Divorce
It isn’t unusual for a couple to have retirement accounts of vastly different values. In some cases, a party may have made significantly more money through the course of a marriage. In other cases, one party may have stayed home to care for children during all or part of a marriage.
Regardless of causation, it’s critical in such cases that both parties are treated fairly as it relates to retirement assets. However, because of the tax consequences of liquidating retirement accounts, it’s often advisable to allow one party to take a larger share of a marriage’s other assets (such as the marital home).
Under New Jersey law, retirement benefits accumulated (by either party) during the course of the marriage will be considered marital property and subject to division. Defined contribution plans (like IRAs and 401(k)s) are divided by present cash value, while defined benefit plans (like pensions) are much more complex and may be determined in part by a plan’s contract.
Making a claim against retirement assets is typically best done by seeking a Qualified Domestic Relations Order, which will create an alternate payee. Most commonly this results in plan assets being split into two accounts. This may also avoid the tax consequences of splitting retirement accounts.
Protecting Retirement in New Jersey Divorce
Our Divorce lawyers in Middlesex County know retirement accounts, along with the marital home, often represent the majority of a couple’s net worth. Avoiding tax consequences and other pitfalls can be vital to protecting your financial security in retirement. In many cases, spouses of long-term marriages may be able to claim Social Security Benefits based on an ex-spouse’s work record, which can also increase financial security in retirement.
The Center for Retirement Research is among those continuing to study the impact of divorce on retirement. While there is evidence that those who divorce later in life may rebound to hold about 70 percent of the wealth non-divorced couples hold in retirement, more than half of divorce households can be defined as being at financial risk in retirement.
A well-executed divorce agreement can put your new life on solid financial ground and can help ensure your welfare long into retirement.
Call Rozin|Golinder Law, LLC today for a free and confidential consultation.