Dividing retirement accounts in New Jersey divorces

On Behalf of | Nov 1, 2023 | Blog, DIVORCE - Property Division |

Around 10% of divorcing couples are over 65 years of age, and another 25% are over 50, according to the American Bar Association.

Divorces between older couples, sometimes known as grey divorces, tend to bring distinct concerns. For example, retirement accounts often make up a significant portion of marital wealth for older people. Dividing these assets fairly can be a complex process.

Splitting retirement accounts

In New Jersey, retirement assets like 401(k)s, pension plans and Individual Retirement Accounts usually belong to the marital estate. Courts aim for equitable division of marital property during divorce. However, equity does not always mean a 50-50 split. Rather, the court weighs factors such as the duration of the marriage, established standard of living and contributions to the retirement accounts.

The court also evaluates each spouse’s future earning capacity when dividing assets. A spouse who has interrupted their career for child-rearing or household management often receives consideration in asset division.

Utilizing QDROs

A Qualified Domestic Relations Order is necessary when splitting 401(k)s and pension plans. In New Jersey, a QDRO is a court-ordered document that gives one spouse the right to receive a portion of a retirement plan. Lack of one can result in tax penalties and loss of rightful shares.

The process of obtaining a QDRO typically involves both spouses, their representatives and a judge. It may take weeks or even months to complete. Once issued, the QDRO directs plan administrators on asset distribution.

IRAs typically do not require QDROs. However, the divorce decree or settlement should clearly outline their division. A trustee-to-trustee transfer can move the funds between these types of accounts.

Understanding the complexities of property division, including the allocation of retirement accounts, is important for people of all ages who are considering divorce.