Splitting retirement assets

On Behalf of | Apr 28, 2023 | Divorce |

New Jersey is an equitable distribution state and so a couple dissolving their marriage can expect the court will consider a variety of factors when dividing their marital property, rather than doing a 50/50 split. That said, for the process to be reliably fair and equitable, accurate, exhaustive valuations and appraisals must be done.

Marital property encompasses all that was acquired from the date of marriage through to the date of filing for divorce. It includes but is not limited to real property, businesses, bank accounts, motor vehicles, boats, planes, antiques, art work, jewelry, stocks, bonds, mutual funds and retirement funds.

Qualified domestic relations order (QDRO)

The parting couple, having inventoried their property and tallied up assessments, can exchange properties and interests, deciding who gets what. But, if retirement accounts are going to be divided, a QDRO will be needed for each account.

The QDRO, used for either 401(k) accounts or pensions, instructs the retirement plan administrator how to specifically divide the funds between the two spouses. Without that order, early distributions from the accounts would have tax implications and would trigger early withdrawal penalties.

Transfer of account incident to divorce

IRAs are handled differently because these are individual accounts and not employer-based plans. The divorce decree or whatever settlement has been arrived at directs how the funds should be divided. Then one spouse transfers funds from their IRA to the other spouse’s IRA without either party being subject to taxation or penalties.

Property division can get complicated quickly, and it can have profound implications for the finances of people who are trying to begin their newly independent lives.