A recent study found that 1 in 4 adults who are now going through a divorce is over 50 years of age. Even more significant is the fact that the rate of divorce among those over 50 years of age has doubled since 1980.
Because many of those couples have worked for longer periods of time than their younger counterparts and are closer to retirement, their retirement assets often take on a much greater significance in their divorce.
In New Jersey divorce cases, all retirement assets which have been acquired during the marriage must be divided between the parties. These assets may include IRA’s, 401K plans, pensions and retirement annuities.
Although each individual retirement asset need not be divided; i.e., each of the parties can retain his/her retirement assets as long as the retirement assets are of similar or equal value, it is important that each asset be properly valued in order to achieve an equitable distribution of retirement assets between the parties.
Valuing the marital portion of retirement assets in a New Jersey divorce is often tricky, and the assistance of financial professionals is almost always required.
For example, if one party has a 401K Plan which is now worth $100,000, and the other party has the right to receive start receiving a pension of $2,000 per month in 10 years, are those assets equal? The answer depends on several different factors, including the current age of the party who will be receiving the pension and the terms of the pension plan.
What about if one party wants to keep a bank account worth $100,000, and offers to let the other party keep his/her IRA which is also worth $100,000? That may seem like a “fair trade,” but it’s not, because the party keeping the IRA will have to pay income tax (and perhaps a penalty) if he/she wants to use the IRA funds.
Those are just some of the retirement asset issues which must be properly dealt with in a New Jersey divorce case. The resolution of those issues becomes even more complicated if part of a retirement asset was “premarital;” i.e., it was started before the marriage.
Then there is the issue of income taxes: if you were not familiar with income tax rules and New Jersey divorce law, you might think that you can’t just transfer a part of your retirement asset to your spouse, without incurring income tax liability on the transfer. That is not true—as long as you do it correctly. The transfer of some—but not all—types of retirement assets in a divorce requires the preparation of a Qualified Domestic Relations Order (QDRO). A QDRO must be very carefully drafted and approved by the Retirement Plan Administrator before the QDRO is entered. Many New Jersey divorce lawyers use companies who specialize in the valuation of retirement assets and preparation of QDRO’s, to make sure that their clients receive the expert assistance they need to navigate through the complicated process of equitably dividing retirement assets in a divorce.
Salvaggio Law Group LLC devotes its entire practice to New Jersey Divorce and Family Law matters, including issues relating to equitable distribution of retirement assets. If you want to talk, please call us at 973-855-3595 or fill out the Contact Form on our website.