New Jersey is an equitable distribution state, requiring that all marital property be divided fairly — which does not necessarily mean divided equally. Marital property consists of all the assets and debts a married couple acquires either together or as individuals during the marriage.
Retirement accounts are typically one of the major assets married couples have. These accounts are considered marital property if they were acquired during the marriage or if a spouse was added to an existing plan after the marriage.
Couples who divorce as they are nearing retirement need to consider the long-term worth of each asset; trading away retirement assets in order to keep the house may be a sentimental choice but could end up being a foolish financial decision.
Splitting a 401(k) account or other qualified plan requires the preparation of a QDRO (qualified domestic relations order). This order allows for the division of qualified plan assets in a tax-deferred manner for the receiving spouse, and provides that spouse with 60 days in which to roll it over into an IRA without penalty. If you want to take some money out for divorce expenses, you can make a one-time withdrawal before you do a rollover without incurring a 10% penalty, even if you are under age 59 1/2, but you will still have to pay income tax on that withdrawal.
While Social Security benefits are not subject to division in a divorce, there are some rules that will affect post-divorce income. For example, you cannot collect benefits on your ex-spouse’s record after a divorce unless the marriage lasted more than 10 years and you are over age 62. If your ex-spouse dies, you may be eligible for survivor benefits (100% of your ex’s benefits) provided the marriage lasted 10 years, you are at least 60, and you are not already entitled to benefits equal to or greater than your ex-spouse’s benefits.
If both spouses are already retired, you need to approach the division of retirement assets with care. There are several decisions to be made, such as how any loans against retirement accounts should be repaid, whether or not there will be survivor benefits for one ex-spouse if the other dies first, and more.
You can rely on Murphy & Cistaro to skillfully negotiate and mediate your issues to a satisfactory resolution. Should the need arise, you can also count on our experience for being aggressive litigators if the situation calls for a more assertive response. Contact us today for your free consultation.