Often, apart from real estate, retirement funds comprise the single largest asset in your marital estate. In New Jersey, the principle of equitable distribution dictates that all marital property, including retirement dollars that were obtained during the marriage, be fairly divided between spouses.
What Type of Plan Is It?
Retirement plans typically fall under two categories: defined benefit and defined contribution plans. With a defined contribution plan, you and/or your employer know how much is put into the plan, but the actual benefits that you receive later under the plan are uncertain, based on the investment performance of plan assets. With a defined benefit plan, you will easily be able to determine how much you will receive in retirement income—it’s typically based on years of service and level of compensation during employment.
Defined contribution plans—IRAs, 401ks and 403bs are all defined contribution plans—are most common and are generally much easier to allocate in a divorce. With an IRA, the best way to divide assets is to make a tax free rollover of an agreed upon amount. With a 401k or 403b, you’ll need a Qualified Domestic Relations Order (QDRO) or other official Orders to avoid any tax consequences.
With a defined benefit plan, because you don’t customarily own the investments, you can’t transfer a portion of them to your ex-spouse, but instead the ex-spouse typically gets a payout at the time the retiring spouse starts to collect monies. Accordingly, if one of the parties had a defined benefit plan, the divorce decree will usually require a regular payment, similar to spousal support or alimony. The amount will generally be based on the length of the marriage and the accrual of benefits during the marriage. Some defined benefit plans also require orders to implement the payments.
Contact the New Jersey Family Law Lawyers at Lyons & Associates, PC
At Lyons & Associates, PC, we bring a high level of personalized service and attention to men and women in New Jersey with family law matters. For a confidential consultation, contact us by e-mail or call our office at 908-575-9777.