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Dividing retirement plans in a divorce

While a person may have invested in and contributed to a 401 (k) plan without the aid of a spouse, the spouse may still be entitled to a portion of 401 (k) assets when a divorce occurs. New Jersey is an equitable distribution state, which means each party in the divorce should receive a fair but not necessarily equal share of marital assets.

The division of retirement funds like a 401 (k) plan will likely be influenced by how the rest of the marital property is divided. One spouse may receive a share of a retirement plan if the other party is compensated with something else, but factors like the length of the marriage and the role each spouse had in the marriage also matter when dividing property. A partner does not have to make a monetary contribution to a marriage to provide value, so a parent who acted as a caregiver and homemaker can be recognized for these efforts.

A court issues a qualified domestic relations order when dividing a retirement plan, and a QDRO designates an alternate payee and how much the payee will receive and when. A withdrawal from a retirement plan can serve as child support or alimony payments when a divorce is settled, and a valid QDRO avoids the 10 percent early withdrawal penalty.

Resolution without court intervention may be especially important with a high asset divorce because one may have little ability to determine how assets are split when a judge makes decisions. Both parties may be able to receive more of the assets they feel they are entitled to when negotiations or mediation are used while drafting a settlement agreement. It is important, however, that the QDRO be properly prepared.

Source: 401k.org, "401(k) and Divorce", December 24, 2014

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Cipriano Law Offices, P.C.
175 Fairfield Avenue
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West Caldwell, NJ 07006

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