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What will happen to my retirement plan if I get divorced?

| Mar 16, 2021 | Divorce |

Many New Jersey residents, including those who are not especially wealthy, have a retirement plan either through their place of employment or some other source.

Retirement plans, such as 401(k)s, pension plans and individually held plans like an IRA include a generous share of many couple’s overall wealth.

In the event of a divorce, these retirement plans will be divided in what the court determines is a fair and just manner.

The court may decide that splitting the plan 50-50 is a good idea, but it is not required to do so and will consider a number of factors before making any decisions.

There may be some exceptions to this rule. For example, if one spouse acquired most of the funds in the plan before the marriage began, she may be able to argue that she should receive that portion outright.

On the other hand, the court is unlikely to give much weight to which spouse legally owns the plan.

In other words, in a divorce, the fact that one spouse took a job with retirement benefits and made 401(k) contributions because of that job does not make the 401(k) automatically his.

Dividing a retirement plan is not always an easy affair

Especially since they can involve a lot of money, dividing up a retirement plan can be a contentious matter. Sometimes, putting a precise value on the plan may be difficult.

For instance, since a pension plan is a promise to pay a regular income after retirement, the court will have to get some idea of the lump sum value of the plan, and this may involve hearing the testimony of experts.

Furthermore, a person may not want to part with her retirement plan and may prefer instead to negotiate a different property settlement. She may, for example, agree to trade other property or make concessions on alimony in exchange for keeping the funds in her plan.

Finally, in order to divide the plan without a tax penalty, the couple will have to prepare a special court order called a qualified domestic relations order, or QDRO, and submit that order to the plan’s administrator.

 

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