How to divide retirement plan assets in a divorce

On Behalf of | Feb 19, 2020 | Firm News

The entire property division phase of the divorce may have you concerned about your financial future. But when it comes to retirement accounts, in particular, you may worry that your plans are in jeopardy. 

Knowing the laws regarding these assets in a divorce may help ease your mind and adapt your plans to secure your future. 

Equitable distribution state 

As an equitable distribution state, New Jersey does not support a 50/50 split of assets and debts in a divorce. A judge reviews your case and divides property based on what he or she believes is a fair split. In this type of divorce, you only share marital property, while anything received before the marriage is separate property. 

Entitlement to retirement savings 

Unless you have a prenuptial agreement in place that specifically refers to retirement accounts remaining separate property, the law may entitle your spouse to a portion of your employer-sponsored retirement plans. This includes standard plans, such as a 401(k), pension and IRA. However, if your spouse has a similar plan through his or her employer, you also split those savings. 

The time you started receiving retirement benefits is crucial in the division process. If you began receiving benefits before the marriage, a portion of your retirement savings might be separate property. This means you only divide the savings incurred after marriage. 

Court-ordered withdrawal 

A court may order a Domestic Relations Order to instruct your retirement plan to pay your spouse a portion of the benefits plans. This also ensures neither you nor your spouse receives penalties for withdrawing part of the balance to divide it. 

Retirement plans usually include forms that you may fill out to request a DRO. For the success of this process, the court and the retirement plan’s administrator need to approve of the DRO. After the judge signs approval, it becomes a Qualified DRO.