IRA and Divorce in NJ: How Divorce Affects Split Between Couples

Retirement accounts raise confusing issues when it comes to apportionment upon divorce. Retirement accounts are often made up of assets deposited before the marriage, plus deposits and interest gained during the marriage, as well as future gains that will be realized after the divorce is finalized. Which part of that counts as a marital asset? How much, if any, of an individual retirement account (IRA) is subject to division in divorce? Read on to learn about IRA division in a New Jersey divorce, and call a knowledgeable New Jersey divorce and property division attorney with any questions or for help with a New Jersey family law matter.

Retirement Plans Are Marital Property

In New Jersey, all property acquired during the marriage is marital property subject to equitable distribution upon divorce, with limited exceptions. Retirement accounts are not an exempt category of assets unless they are gifted to or inherited by a party to the marriage. Distributing retirement assets will require valuing the account and determining how much of the account qualifies as “marital property.”

How Much of the Retirement Account is Marital Property?

Depending on when the account was established and funded, some or all of the retirement account may be subject to equitable distribution. The parties will need to obtain a valuation of the account, which may look to the current value or the potential value at the time of retirement, depending on the circumstances and the type of account. Defined contribution plans like IRAs will generally be divided according to the present cash value.

If an IRA was established during the marriage, then the entire value of the account will qualify as marital property subject to equitable distribution. If, however, the account was established before the marriage began, then the deposits and savings accumulated before the marriage should be deemed separate property, while growth accumulated during the marriage will be treated as marital property, especially if there were contributions made to the account with marital income.

Equitable, Not Equal

In New Jersey, marital assets are subject to “equitable distribution,” not “equal” distribution. Equitable means fair and just, which may not translate to a 50/50 split. In the case of an IRA, the parties will first establish the portion of the account that is subject to distribution–likely any deposits and investment growth obtained during the marriage. That portion of the funds will be distributed as a marital asset.

The court will look to several factors to determine the equitable distribution of property. Factors include the length of the marriage; the health and finances of each party; the income and the earning capacity of each party; each party’s contribution to the asset; the tax consequences of dividing retirement assets; whether either party delayed their career aspirations to support the family; and others.

Even once each party’s “share” of the retirement account is established, it may make sense to realize that share in other assets rather than divide up the retirement account itself. Dividing retirement assets requires special court procedures, such as obtaining a Qualified Domestic Relations Order (QDRO). The parties can instead determine the value of one spouse’s share of the retirement account and then give that party other assets equal to that value, such as the family home or a larger share of a savings or checking account. Parties can still choose to divide up retirement assets, however, with assistance from their divorce attorneys.

Experienced Advice and Effective Representation for Your New Jersey Property Division Matter

If you need qualified and talented legal help with property division, divorce mediation, paternity, child custody, premarital agreements, child support, or other family law matters in New Jersey, contact the Union offices of family law attorney John B. D’Alessandro at 908-964-0102.