RETIREMENT ASSETS AND DIVORCE
The turmoil of going through a divorce is difficult for all parties in the process. No two divorces are alike. If children are part of the marriage, custody issues and child support payments become major elements that must be addressed and resolved. Divorce cases can also become difficult when future pension rights are at stake. Let’s review the topic of retirement assets and divorce and how the process deals with the division of assets of the parties.
Divorce can have a significant effect on a person’s current financial well-being; as well as their future financial comfort in retirement. Divorce proceedings are usually more complicated if the parties possess significant assets in the marriage. When working on the equitable divisions of assets in a divorce settlement, dealing with assets held in defined contribution plans, sometimes called savings plans, are the easiest to handle. These plans, which include IRAs, 401Ks, 403Bs, and SEPs, contain assets of which the value can be easily determined each day.
On the other hand, assets that are in defined benefit plans, like the typical company pension plan, present a more complicated challenge in deciding how to equitably divide the value between the parties. This is due to the fact that the current value of a pension plan is difficult to determine. The amount of payout from such a plan cannot be determined with certainty until the person reaches retirement age.
Divorce Pension Payout
In most states, including New Jersey, retirement assets acquired during the marriage are marital assets. And, as such, their division should be equal among the parties. As noted above, this process is more complicated when dealing with pension rights. Especially when trying to determine the divorce pension payout. When the parties in the proceeding have similar values in their retirement accounts, the parties often agree just to keep their own accounts. Of course, when most or all of the retirement assets are in the name of one spouse, part of those assets should be reallocated to the other spouse after the value of the assets is determined.
Divorce and Pension Plans
The topic of divorce and pension plans and the division of assets also includes other assets held by the parties to the divorce. The parties often possess other assets outside of retirement assets; such as real estate or a stock portfolio held outside of a retirement plan. When this is the case, often the parties might agree that the spouse with a pension plan keeps it in exchange for granting other assets of equal value; such as the home or some stocks, to the other party. Of course, they can only use this method after the parties arrive at a value for future pension rights.
Final divorce settlements can only be reached after the value of pension plans are determined. There are various formulas which can aid the parties to determine future values. But the parties must agree on a formula before it can be done. This may be an area of contention among the parties; as the division of value will vary depending upon the future assumptions made in the agreed-upon formula. For parties utilizing the mediation process, they can negotiate and mutually agree on an equitable distribution. Under the arbitration process, the arbiter will consider the proposals from each side; and decide on the final distribution of assets and liabilities.
Retirement and Divorce Laws
When you consider a typical marriage, retirement assets make up the largest number of assets accumulated during the marriage. If you are planning to divorce in New Jersey and have retirement assets at stake, get the assistance you need to assure you the fair amount of marital assets you deserve. The New Jersey divorce law experts at the Law Offices of James C. DeZao are experts in dealing with divorce and pension plans. We can answer all your questions and assist you through the entire process. Call us today for a free consultation at (973) 358-6134.