Many New Jersey couples worry about what will happen to their retirement account in a divorce. Property division is often one of the most complicated aspects of a divorce, with retirement accounts being a primary concern.
After all, you have worked hard to build up your retirement accounts over the years and do not want to lose the financial security you counted on having when you retired.
However, you may have to give a portion of your retirement account to your spouse. New Jersey law requires that marital assets be divided equitably, or fairly.
The value of your retirement account that you acquired during your marriage is likely to be considered a marital asset.
How retirement accounts are split
Most retirement accounts are usually split through a qualified domestic relations order (“QDRO”). Some types of accounts, such as an IRA, can be split using a transfer incident to divorce.
The benefit of these two options is they allow you to transfer a portion of your retirement accounts without any tax penalties for a withdrawal. If the spouse receiving the portion of the retirement account transfers it into another retirement account, they can also avoid tax liability.
If you truly cannot bear the thought of parting with any of your retirement accounts, you can try to negotiate another resolution that will achieve the goal of equitable distribution.
A New Jersey court is going to examine the overall division of all marital assets to verify that it is a fair split. Sometimes spouses who both have retirement accounts of relatively equal value choose to each keep their own accounts.
Alternative options
If you have a retirement account but your spouse does not, you could agree that your spouse receives an extra asset, such as a bank account or piece of property, while you keep your retirement account. This achieves an equitable division while allowing your retirement account to remain intact.
How you divide your property such as retirement accounts in divorce can have long-term financial implications. It is important that you thoroughly explore your options before deciding how to split marital assets.