HOW RETIREMENT ASSETS ARE DIVIDED – NEW JERSEY EQUITABLE DISTRIBUTION
Equitable division is the process of dividing a couple’s assets upon divorce. The “equitable” part of equitable division means that the process is not a 50/50 split of assets, but rather tries to make the division that is the most fair, or equitable. Retirement assets are subject to equitable division in a New Jersey divorce case.
Retirement assets earned while a couple is married are considered marital assets, and will be divided upon divorce. We often think of retirement accounts as belonging to one spouse only, often because they are derived from a single spouse’s wages and the accounts are in only one spouse’s name. However, the money earned, and thus the retirement assets earned, during the marriage are considered the assets of both of the spouses, and as such they are not necessarily awarded solely to the spouse whose name appears on the account. If the account-holder spouse wishes to keep the retirement asset for him or herself after the divorce, he or she will likely need to agree to award the other spouse an asset or assets of the same value in exchange.
TRANSFERRING ASSETS IN DIVORCE – QDRO AND TAXES
A Qualified Domestic Relations Order (QDRO) is a court order that directs the administrator of retirement accounts to divide the account(s) in question according to a predetermined percentage. The percentage that will be given to the non-account holder spouse may be placed into a new account with the existing company, or placed in another retirement account, such as an IRA. The benefit of using a QDRO is that it makes the transfer of the accounts a tax-free event for both spouses. The QDRO process should take place before the judgment of divorce, but it is often treated as a legal matter separate from the divorce case, so it may not be provided for in the agreement you signed with your divorce attorney. For reasons discussed below, this is not a matter to set aside for after the divorce, as the financial consequences of not ensuring a QDRO is properly executed can be devastating. Continue Reading →