Even when ending an unhappy marriage is the best possible choice you can make, you will still encounter a few challenges that are unique to divorce. For example, divorce can take a toll on your financial stability. While younger couples might have more time to bounce back from this setback, it gets harder and harder the closer you are to retirement. If you are in or near retirement, it is important that you pay careful attention to retirement assets when dividing marital property.
While every couple is different, retirement savings are often some of the most valuable assets that you will bring to the table. They are also some of the most complicated assets, too. Dividing your retirement savings without paying penalties, fees or taxes often requires a special approach.
Qualified domestic relations orders
Using a qualified domestic relations order — QDRO — is one of the best ways to protect your retirement funds. A QDRO only applies to retirement plans that are considered IRS tax-qualified, though. Different rules apply when you have a government or military pension.
A QDRO will work in conjunction with your divorce decree. If your settlement says that a certain portion of funds should be withdrawn from your ex’s account and placed into yours, the QDRO allows that transfer to happen without incurring any unnecessary taxes or fees. QDROs are not always a one-size-fits-all approach though, as the rules regarding 401(k)s, IRAs and other retirement plans are all a little different.
How much of the savings will I get?
In New Jersey, divorcing couples divide their marital assets equitably. This is to say that property division does not necessarily end up as exactly 50/50, but should instead be a split that is most fair to the situation. The same applies to retirement savings. Some factors that may influence what a fair division looks like to your situation includes:
- How much you and your ex earn
- How much retirement savings you have
- How close you are to retirement
- How much you contributed to the savings
Another thing to keep in mind is whether you are dividing your employer sponsored retirement account. If so, when you divide the funds, you will transfer them from your account into your ex’s. If you are dividing your ex’s employer sponsored account, you may need to set up a new retirement account to put your portion of the savings into.
When are retirement funds separate property?
In general, money saved toward retirement over the course of a marriage is considered marital property. However, if you began saving toward retirement before getting married and continued contributing money after marriage, any money saved prior to tying the knot should still be considered separate property. You do not have to divide separate property during divorce.
Creating a secure financial future after divorce is important. Prioritizing your retirement assets and other important financial assets during property division is one way to help pave the path toward the future you want. For a better understanding of the entire divorce process, you can also further explore other topics in New Jersey family law.