Divorce can leave you unsure about your future income.
Will you have to share the retirement savings you built?
Can your spouse claim money you saved before marriage?
What happens if the account is only in your name?
Questions about divorce and retirement accounts affect both spouses. New Jersey courts can split benefits earned during your marriage. But courts do not always split each plan in half.
Start with the plan type, the dates, and the terms of your settlement. Then, ask how each step will work. Your share should help meet your needs after the case ends.
Find the Marital Share
First, find out when you or your spouse earned the funds. Savings earned during your marriage may count as marital property. This means property the court may divide in your case.
The marital share may include funds you paid into the plan. It may also include employer contributions and investment gains on that money. But a name on a form does not settle who gets it.
New Jersey’s rules for divorce and retirement accounts recognize work at home, too. A spouse who raised the children may have a claim. This can be true even without paid work outside the home.
An account may hold funds from before and during the marriage. So, trace those shares before you choose how to split them.
Trace Your Earlier Savings
An IRA or work plan may predate your marriage. You may keep the part you already owned. Also, passive growth linked to that part may stay yours, too. But you must show where the funds came from.
For example, say you had $40,000 when you married. That sum may have grown over time. So, taking just $40,000 from today’s total could miss part of your claim.
Good records help you resolve questions. Get old statements, rollover records, and clear proof of contributions. If you changed jobs, ask former plan providers for records.
Ask your lawyer if your case needs an expert’s help. Some plans span decades and more than one job. Keep a copy of any agreement that sets out who owns the funds.
Fair Does Not Always Mean Half
New Jersey calls its approach equitable distribution. This means a fair split, based on each case.
The court weighs how long you were married and what each spouse owns and owes. It also looks at tax costs, needs, unpaid work, and other facts. A spouse’s pay alone does not tell the whole story.
With retirement account division in divorce, start with the share that both spouses may claim. Then, decide how to split that share.
Here is how one agreed split might work. Assume a plan holds $200,000, and the proven marital share is $120,000. If you agree to split that share in half, each gets $60,000 from it. The $80,000 separate share stays with the account owner.
As you discuss divorce and retirement accounts, compare other assets, too. You may trade a claim to one asset for a share of another. But compare costs before you agree.
Check the Dates
Moving out does not always end the time used to build the shared claim. Instead, New Jersey usually uses the date either spouse files the divorce complaint. Yet some cases involve exceptions, such as certain written agreements.
But that date may differ from the date used to value the plan. Funds can rise or fall while the case goes on.
Clear dates help avoid disputes over divorce and retirement accounts. Your final settlement should say who shares those gains or losses. It should state when each share of funds will move.
Next, check for money paid in later for work done earlier. Ask your lawyer which part of that money falls within your claim.
Know Which Plan You Have
Knowing how to split retirement accounts in divorce starts with the plan type. No single set of rules fits all plans.
A 401(k) holds a balance you can see on a statement. Check each plan’s details. Look for loans, employer contributions, and savings from before the marriage.
By contrast, an IRA uses its own steps to split funds. Also, Roth and pre-tax funds have different tax rules.
A pension may pay a set sum each month once you retire. Its value may go far beyond the sums paid in. Ask for the full plan terms.
Public and military plans have rules of their own. Get the plan’s full name before you seek advice on divorce and retirement accounts.
Get the Transfer Right
For many private employer plans, a signed settlement is not enough. You need a Qualified Domestic Relations Order, or QDRO.
A QDRO in divorce tells the plan how to pay a former spouse’s awarded share. Next, the plan administrator must check that the order meets legal and plan rules. So, court approval does not finish the task.
For a 401k division in divorce, choose who will draft and send the order. Agree on who will pay all related fees. Then, check who will track the plan’s review.
The Department of Labor urges spouses to address these steps early. Ask for the plan’s QDRO procedures while you negotiate the settlement.
When handling divorce and retirement accounts, assign each step to a named person. Get proof that the plan has accepted the order. Then, check that the plan has set up the award or paid the share as required.
Give IRAs Their Own Instructions
An IRA has its own rules. IRAs generally use a transfer incident to divorce. This process moves the awarded share to your former spouse under the divorce terms.
First, ask the firm that holds the IRA for its forms. Then, give it the court papers it needs. Usually, the funds go straight to the other spouse’s IRA.
Do not take cash out just to pay your spouse. Otherwise, you may face tax costs.
For couples handling divorce and retirement accounts, the court papers must make the terms clear. Name each IRA and state the share due. Also, address fees and gains or losses.
Look at the Tax Bill
Look past the sum on each statement. What can you spend once you pay tax?
A rollover moves funds to another retirement plan or IRA. If it meets the rules, it can delay income tax. However, a move to a Roth account can bring a tax bill.
By contrast, cash from a QDRO may count as income. Yet qualifying QDRO payments to a former spouse avoid the extra 10% tax before age 59½.
However, the QDRO exception does not apply to later IRA withdrawals. Likewise, taking cash from your own IRA to pay your spouse may bring more tax.
Before moving funds, ask a tax expert what you will owe.
Discuss divorce and retirement accounts with our team.
Compare Ongoing Costs
Review the fees attached to each account. For example, plans may charge different fees to hold and manage funds. Those fees can reduce what you keep over time.
So, ask for a fee schedule before choosing where your share will go. Check for charges to close an account or move funds. Also, compare the services on offer. The cheapest plan may not meet all your needs.
Keep Pension Income in View
A pension often pays income each month for life. Ask when each spouse can start payments.
For example, some plans split each payment when the worker gets it. Others can give a former spouse a share with its own payment terms. The plan’s rules and court order guide the steps.
Your review of divorce and retirement accounts should also cover any gap before pension payments start. So, plan how to meet your bills while you wait.
Also, ask what happens if one spouse dies. Survivor benefits may provide an income after one of you dies. Then, check who has those rights and what terms will protect them.
Weigh the House Against Savings
You may want the home because it feels safe. Yet its costs could strain your budget.
For example, $200,000 in home equity differs from $200,000 in a pretax retirement plan. Home equity is the home’s value minus its debts. You may need to sell or borrow to use it. In contrast, you may owe tax when you draw from the plan.
Your settlement should reflect life after the split. Think about repairs, debts, monthly bills, and income.
In some cases, an asset swap may work for both spouses. Still, compare costs before you trade future savings for the house.
Protect Your Paper Trail
The best way to learn how to protect retirement savings in divorce is to have good records. First, gather proof of what each plan contains and where the money came from.
Gather for each account:
- Statements from now and around your wedding.
- Money paid in, employer funds and transfers between plans.
- Records of loan balances, projected future earnings, and plan terms.
- Forms that tell who gets your money when you die.
- Court orders or signed agreements establishing rights to the funds.
Next, check plans from old jobs too. For instance, a past employer may still owe you a pension.
Before you take a loan or change a form, speak with your lawyer. Court orders and plan terms may limit those steps.
Build Your Savings
Don’t simply look at the transfer: Think about divorce and retirement accounts. Start with your salary and your new home expenses. Add on rent, food, health costs and debt repayment.
Then determine how much you can save every month. A smidgen puts you in the ballpark. Update that number as your income or expenses change. And finally, count in any critical bills so no surprise derails your strategy to save.
Schedule a Free Case Evaluation
Your future income deserves care now. The Law Office of Jennifer J. McCaskill, LLC helps Monmouth County clients with divorce and property division.
We can review divorce and retirement accounts as part of your New Jersey case. Bring your statements and questions. Together, we can discuss your rights, the details of the plan and what happens next.
Call 732-647-9256 to request a free case review.
Need legal advice with your divorce or separation? Get a free case evaluation.
FAQs
Are retirement accounts always split equally in a New Jersey divorce?
Not always. The courts in New Jersey do aim to distribute marital assets fairly and consider issues including the length of the marriage, finances and contributions by each spouse.
Do I need a QDRO to divide an IRA?
No. IRA transfers follow different rules. Use the required divorce documents and work with your account provider to transfer funds.
Can I keep retirement savings from before marriage?
If you can prove the source, you may preserve savings accumulated before marriage. Your attorney can review any relevant growth claims.