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Protecting Your 401(k) in a New Jersey Divorce


One of the toughest aspects of ending a marriage is determining how assets will be divided. Dividing the fair share of one’s checking or savings accounts may be relatively straightforward. But splitting retirement accounts is more nuanced.

A common misconception is that a 401(k) and other retirement funds must be split 50-50. That could happen, but equitable distribution means marital assets – including retirement accounts – will be dispersed in the way that is most fair, though that may not necessarily mean equal shares.

In general, retirement assets that are acquired during marriage are considered marital property, subject to equitable division per N.J.S.A. 2A:34-23-1. For the most part, any money put into a 401(k) during the time you were legally married can be equitably distributed. This also applies to any appreciation on that portion of the assets and any loans that were taken from retirement accounts. That means the asset or funds can be divided between the parties, regardless of the name on the account.

Protecting your 401(k)k in a New Jersey divorce may be possible if you can show it is not a marital asset subject to equitable distribution or if you’re willing to make other concessions to offset the value of the account to which your former spouse would otherwise be entitled. Our knowledgeable and dedicated Freehold divorce lawyers can help you examine the facts of your case and advocate for fairness with respect to retirement accounts and all other aspects of the dissolution.

How 401(k) Accounts Valued and Divided

If you don’t have prior retirement account statements on hand, your employer/human resources department should have your 401(k) account information on file. If there is any dispute as to the value of the account, our attorneys can help you arrange a formal appraisal of it.

Depending on the type of plan, a spouse might be able to withdraw their share of retirement funds immediately, though they may incur a tax penalty for doing so. Otherwise, they could wait until the account holder retires. A financial planner can help parties involved choose the smartest route.

The final divorce order will specify how the 401(k) is being divided, and a Qualified Domestic Relations Order (QDRO) will be drafted, signed by both the judge and the administrator. This step is imperative. It will direct the administrator on how to distribute the funds in compliance with the terms of the divorce settlement and the Employee Retirement Income Security Act (ERISA).

Loans and/or Withdrawals

Most employer-sponsored, qualified plans such as a 401(k) or a 403(b) allow people to borrow from their own retirement accounts and repay those amounts with interest. It’s generally not the best loan option available, but it can be a lifesaver in a financial bind.

Loans taken from retirement accounts can be subject to equitable distribution, depending on the circumstances and purpose for which the loan funds were used.

A central consideration in how the loans will distributed is whether both spouses had knowledge and consented to the withdrawal and also whether the funds were used for a marital purpose, such as covering the mortgage or paying off a joint credit card. If one spouse liquidates a retirement account for some non-marital purpose without the Ok from the other. This could be considered dissipation of the asset, which could result in penalties or a significant offset in favor of the other spouse at the time of divorce.

However, if loans were taken out with the consent of both parties, it will be considered marital debt for which both parties will share responsibility. Whatever remains in the account would be shared equitably, minus whatever funds were withdrawn.

Call Rozin|Golinder Law, LLC today at (732) 810-0034 for a free and confidential consultation.

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