How to Divide Retirement Assets (Including a 401k plan) in Divorce
Dividing retirement assets can be one of the most complex and contentious aspects of a divorce. Retirement accounts are subject to equitable division in divorce, like all other forms of marital property, but specific rules govern how much of the account is subject to division and how that division must take place. Below, our knowledgeable New Jersey divorce and family law attorneys explain the basics of dividing a retirement plan in a New Jersey divorce.
How Much of a Retirement Account is Subject to Division?
A retirement account is considered marital property subject to equitable division in the divorce. However, marital property is meant to include only property acquired or earned during the marriage. For retirement accounts, a good rule of thumb is that any funds put into the 401k during the marriage will be subject to division. That means that any contributions made from the date the parties were legally married until the divorce complaint was filed are likely subject to equitable distribution. Employer contributions to the account as well as interest earned during the marriage will both be included.
Valuing the Account
In order to equitably distribute the account, the actual value of the account must be established. Your employer or their human resources department (or that of your spouse) should have all of the information you need regarding the retirement account on file. If there is any confusion or dispute over the value of the account, one or both parties can retain a pension appraiser to conduct an evaluation.
Required Court Orders for Retirement Account Division
Dividing retirement assets such as pension plans and 401k plans typically require additional legal hurdles before they can be distributed. IRS tax-qualified plans that are covered by the Employee Retirement Income Security Act (ERISA) require a special kind of court order known as a qualified domestic relations order (QDRO). A QDRO is a court order pertaining to child support, alimony, or property rights; it can be used to instruct a pension plan as to how to pay the spouse of the pensioner their share of the plan benefits. The QDRO will spell out how the funds in the account should be apportioned.
The order must include certain specific information to be a QDRO. Covered pension plans will not distribute funds to a non-pensioner without a QDRO. The administrator of the company plan is responsible for determining whether the QDRO requirements are met.
Typically, you do not need a QDRO to divide an IRA or SEP account. However, to split an IRA without incurring tax on the transfer, a divorce decree must be issued by a court. If you have a retirement account and you are considering divorce, it is important to talk to your qualified divorce lawyer about how your retirement account will factor into your divorce case.
Help from a Seasoned New Jersey Divorce Lawyer
If you need effective legal help with child custody, divorce, child support, alimony, or other family law matters in New Jersey, contact the Union offices of family law attorney John B. D’Alessandro at 908-964-0102.