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Retirement funds require precision for divorce distribution

On Behalf of | Mar 13, 2018 | Divorce

The financial issues that arise in a New Jersey divorce can be quite challenging. For example, dividing retirement funds will require proper planning. In a 2016 recent survey, 62 percent of divorce lawyers stated that retirement fund division was the most difficult issue to address for their clients.

There are a number of different types of retirement plans, each of which necessitates a different separation process. When dealing with property division in a divorce, it is critical that these accounts are dealt with accurately and precisely; failure to do so can have serious consequences. Both parties could lose significant amounts of money in taxes and penalties when an improper distribution is made from a retirement account.

Most retirement plans are based at one spouse’s workplace. In order to distribute these after a divorce, a qualified domestic relations order is needed. While this court order reflects the distribution agreed upon in the divorce settlement, it is not issued automatically along with the divorce decree. Every retirement account that will need to be divided will require its own QDRO. In fact, these orders are a requirement to distribute an array of different types of retirement funds, from a traditional defined-benefit pension plan to a 401(k) fund.

The QDRO can be drafted by a spouse’s divorce attorney. During the asset division process, legal counsel could draft the order and have it approved by the court before presenting it to the plan administrator. An attorney can work directly with the plan to ensure that the distribution is conducted accurately and in line with the settlement.