Pensions in New Jersey Divorce: Where’s My Retirement Going?
With divorce rates higher than ever, the equitable distribution of a couple’s assets includes retirement benefits.
Just because you were the one who worked outside of the home does not mean that your ex isn’t entitled to a portion of those assets. Retirement funds are one of the most valuable marital assets besides the family home. Calculations are made based on the amount added to your benefits during the marriage. If both of you work and have retirement plans, both of them are subject to distribution. It is of the utmost urgency that you hire an attorney who is familiar with this complicated process, which, if mishandled, could cost you thousands of dollars in taxes.
Pensions are challenging to handle in a divorce because they are commingled (having both marital and separate property characteristics). The average age of a couple is much higher than in previous generations, and it is more likely that a retirement account will have been started before getting hitched. Also, more older couples seek separation (known as a gray divorce due to the color of their hair), which means that the pension may have come due or is close when the marriage has fallen apart. Determining the value of which portion of the pension should be eligible for distribution requires professional support.
What Happens To My Pension in a NJ Divorce?
What doesn’t happen is a 50/50 split between the parties. New Jersey law requires each person in the relationship to receive a portion of the assets obtained during the length of the marriage. Equitable distribution of the pension is decided while considering factors such as the age, health, tax issues for division of the assets, incomes, and possible future earnings of both parties. While the monetary contribution of one party may be superior to that of the other, that does not mean they will receive a much larger portion of the assets. Consider this example, Harry Smith has worked at Nokia in Murray Hill for 20 years, and for 15 of those years, he was married. The portion of his pension that will be calculated for distribution is what he made during those 15 years. The court considers the couple one entity, and while one partner was working outside of the home, the other was sacrificing their best years career-wise to take care of all things domestic. Typically, pensions are in the form of 401Ks, IRAs, private pensions, stock options, and other pension accounts.
How is the Pension Divided in a New Jersey Divorce Case?
Retirement plans are divided into two types: the first is a defined contribution plan which is composed of direct contributions such as a 401k, where the employer and the employee contribute a certain amount every pay period, or an IRA (Individual Retirement Account), which is a similar kind of pension account. The benefit of these accounts lies in their exemption from certain taxes when they are cashed out. The other is a defined benefit plan where the part of the divided pension is the section that begins when the marriage begins up to the day the divorce was granted. Earnings contributed to a pension before or after the marriage are not included in the pension settlement. These calculations are done even when the party to whom the pension belongs has yet to reach the age of retirement.
New Jersey uses a QDRO (Qualified Domestic Relations Order) to calculate and give part of a retirement account to the other spouse. This process takes place after the divorce. Your lawyer will draw it up, and a judge will sign it. Other plans can be distributed normally in court. Retirement plans such as 401k, stock ownership, and profit-sharing plans must be settled using this form. Once approved, the financial institution in charge of the accounts will receive the form, and the plan administrator will disperse the funds in the way directed. The payment is usually made electronically or with a check. Frequently, the QDRO attorney will send the completed form to the plan administrator for a pre-approval to be sure that all of the I’s are dotted and the t’s are crossed, sending it to the judge afterward. This process can last for several months.
Some couples choose to negotiate their portion of the assets to facilitate the process and move things along. They draw up a document known as an MSA (Marital Settlement Agreement) which says the party with the pension will keep it intact and agrees to receive a smaller percentage of the couple’s assets in the divorce settlement.
Contact an Experienced Pension Distribution and Divorce Attorney in Linden, New Jersey
Getting a divorce is a confusing time, and there are many facets to consider, especially when one is talking about money. When feelings are hurt, and there is much arguing, deciding how to split a retirement pension seems insurmountable.
If you are considering getting a divorce or know someone who is Attorney Edward S. Cooper, Esq. is an excellent advocate and representative who looks out for you every step of the way. His unique style of practicing law and listening to his clients are what make him an excellent attorney. If you are in need of divorce-related legal counsel in New Providence, Elizabeth, Roselle, Berkeley Heights, and the greater Union County region, do not hesitate to contact him at (908) 481-4625 or online for your confidential consultation. Don’t wait for time to run out. Schedule your appointment today.