Everything You Need to Know About 401ks and Divorce

Going through a divorce is not as cut and dry as many make it out to be, especially when there are 401ks to distribute. Many employers in New Jersey offer these accounts to help employees save money for retirement. Whether you want to keep it or not, you will have to divide your 401k if you file for divorce. The same goes for your IRA. Today, we will explore how courts decide to split up 401ks and IRAs during a divorce settlement.

Qualified Domestic Relations Order

Courts require a Qualified Domestic Relations Order (QDRO) when filing for divorce and dividing a 401k. However, you cannot file a QDRO until the divorce decree orders the division of the 401k as part of the divorce agreement. The QDRO is a significant document because it tells the entity operating the account how to divide it in conjunction with the Employment Retirement Income Security Act (ERISA). The family court judge presiding over your divorce must sign the QDRO before the administrator of the account can sign it. This document will name your spouse the alternate payee in 401k and divorce.

Ways to Distribute a 401k in Divorce

When you file for divorce, there are various ways to distribute a 401k. These options include the following:

  • Your spouse can leave their share in the account with your half.
  • Your spouse can roll their portion over into their account.
  • Your spouse can take their share as a cash payment.

If your spouse chooses the cash payment, the law requires that distribution to occur at the same time as the QDRO approval, not later, unless your spouse is over 59.5 years of age. If your spouse chooses later to take the cash payment and is under 59.5 years of age, he or she will be subject to a 10 percent penalty by the IRS, according to divorce and 401k rules.

Equitable Distribution

In New Jersey, a family court judge will use equitable distribution to split all of the assets of a marriage when the time comes for divorce. This method of dispersal means that the court does not merely split the funds down the middle, 50-50. Instead, the judge will decide based on both parties’ testimony and their initial contributions coming into the marriage. The court will take all of the following into consideration:

  • Age of each spouse
  • The physical and emotional health of each spouse
  • Length of the marriage
  • Each spouse’s earning capacity
  • The standard of living for the couple
  • Debt and liability
  • Contributions made by each spouse to the marital property
  • Financial circumstances of each spouse
  • Any prenuptial agreements

Worried About Your Financial Accounts in Divorce? Speak to an Attorney Today

Are you facing a 401k or retirement account division in New Jersey due to divorce proceedings? Protect your assets and retirement by hiring an experienced and professional divorce attorney. The Law Offices of James C. DeZao, P.A. retains a full staff of expert attorneys who know how to help you navigate the complex landscape of 401k and retirement account division during divorce. Don’t put your future financial well-being in jeopardy by ignoring the urgency of this situation. Enlist the services of an attorney team that will fight tirelessly for your fair share of the funds. Call us at (973) 358-6134 to schedule a free consultation today.

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