When you embark on your career and begin investing for your retirement, your funds seem hardly growing. However, after 20 to 30 years in the workforce, you are likely sitting on a substantial nest egg.
Currently, more Americans than ever have over $1 million in their 401(k)s. That’s a lot of money on the table if they decide to divorce.
The judge decides what’s fair
New Jersey is not a community property state but an equitable distribution state. Therefore, the judge will decide what is a fair share of marital assets for each spouse based on factors such as:
- Duration of the marriage
- Age and health of both parties
- Standard of living during the marriage
- Economic circumstances of each spouse
Retirement funds acquired during the marriage are considered marital property and will be part of the equitable distribution. Any portion of those funds accumulated before the marriage is considered separate property and excluded from division.
To avoid significant tax implications from early withdrawals, the court may issue a Qualified Domestic Relations Order (QDRO), which allows plan administrators to legally distribute a portion of the funds to an ex-spouse. If you have some of your retirement funds in an IRA, transfers incident to divorce are non-taxable as long as the funds are rolled over directly into your ex-spouse’s IRA.
You may be able to protect more of your retirement savings; however, it will likely require you to give up your share of other marital assets, such as the house and other investments, like savings or real estate. After your divorce, you might need to reassess your retirement goals and savings strategy. More importantly, you will want to review your situation with someone who can help you evaluate your options and negotiate a favorable settlement.