How Will Divorce Affect Your Retirement Funds?

For many couples in Bergen County who are considering divorce, the most valuable asset they hold may be their retirement funds. Whether you have a traditional pension plan, a 401(k), a Roth IRA or some other type of retirement account, divorce can have a significant impact as these types of funds are generally considered to be marital assets. By learning more about retirement funds and working with our Hackensack divorce attorney, you may avoid some of the pitfalls that can accompany property division and ascertain what to expect when your own divorce is finalized.

Equitable Distribution and Retirement Funds

New Jersey divorces involve property division on the basis of equitable distribution. Regardless of who officially holds the title of any particular one, all marital assets can be divided. This means that each spouse’s individual retirement fund will most likely be considered marital property. However, only the portion of the retirement funds that were accumulated during the marriage is subject to property division: individual property held prior to the marriage will remain individual property after the divorce.

While equitable distribution does not necessarily mean a 50/50 split, family court judges may default to this distribution unless the parties to the divorce finalize their own settlement related to the retirement funds. It can be difficult to value retirement funds, and this is particularly true when valuing only the portion of the funds accumulated during the length of the marriage.   It can be even more complex for defined benefit plans such as traditional pensions.   The Law Offices of Kelly Berton Rocco works closely with pension valuation companies to ensure it is done correctly.  The final benefit often depends on the named spouse’s length of time on the job and his or her retirement age. In this case, the divorce settlement may include a specified percentage to be paid monthly by the recipient to the spouse.

In addition, the valuation of contributions to an IRA, 401(k) or similar plan also requires careful study. If the value of appreciation of premarital assets is not accounted for in the calculations, the spouse contributing to the fund could lose personal assets in the divorce settlement. Your Bergen County divorce attorney can develop a precise accounting of retirement assets in an effort to achieve a just settlement.

Qualified Domestic Relations Order

An official court order called a Qualified Domestic Relations Order, or QDRO, is generally necessary in order to divide a retirement fund during the divorce. This is true for a number of types of retirement accounts, including the following:

• 401(k)
• 403(b)
• Profit-sharing portfolio
• Defined-benefit pension

Any retirement fund that is subject to the federal Employment Retirement Income Security Act (ERISA) requires a QDRO for division under a New Jersey divorce settlement. This official court order lays out exactly how the fund is to distribute the assets. It directs the administrator of the fund to distribute some designated portion of the account to the other party after the dissolution of the marriage.

In general, a QDRO is most frequently negotiated in advance by both divorcing spouses and their attorneys before being presented to the family court judge for signature. During those negotiations, both divorcing spouses can work to obtain a fair settlement that properly values their contributions.

Key Issues in Retirement Fund Divorce Negotiations

The negotiation period before a QDRO is decided upon and issued can be critical to the protection of certain rights that safeguard divorcing spouses from later changes. For example, the effect that early retirement or cost-of-living adjustments may have on pension plans can be handled as part of the QDRO. When both spouses reach an agreement during a divorce, costly and difficult legal issues that might arise years down the road can be prevented.

In addition, when a loan is taken from a pension plan, it can affect the value of the future benefit. The effect such a loan would have on the nonparticipating spouse could be clearly defined as part of the negotiated QDRO. Rights of survivorship for pensions and other retirement funds can also be negotiated at the time of divorce. Detailed negotiations to deal with these matters early on can help avoid painful financial and personal impacts later when it could be much more problematic to sort through them.

If you are considering divorce and wondering how it will affect your retirement plans, you can find out more about how to protect yourself and your investments. Contact the Law Offices of Kelly Berton Rocco in Hackensack at 201-343-0078 to speak with our Bergen County divorce lawyer.