In New Jersey, everything acquired by either spouse during marriage is considered a marital asset subject to equitable distribution in a divorce, with some minor exceptions. What some couples may not realize is that the marital property rule applies to illiquid assets such as retirement accounts. If an employed individual is not yet at the age of retirement, the parties may utilize a Qualified Domestic Relations Order to divide retirement accounts without subjecting them to a penalty for early withdrawal. Additionally, certain accounts such as a Roth IRA or Roth 401(k) do not have penalties for early withdrawals.
Some people may be willing to forego their right to a spouse’s retirement assets in order to keep the family home as part of the property distribution agreement. In one survey, almost two-thirds of participants reported that their house was the more expensive piece of marital property that they and their spouses owned. In over 50 percent of cases, one of the spouses kept the home, as opposed to the option where both parties sell the home and dividing the proceeds.
Individuals may not realize that the potential for growth of retirement accounts may make these assets more valuable than a family home, and a home will also cost money to maintain. Therefore, it may behoove divorcing couples to sell a home. Additionally, individuals may want to keep a portion of a spouse’s retirement assets in lieu of accepting something like alimony, which is taxable.
Social Security benefits may also be a forgotten item. In some cases, a divorced person can claim up to half of the former’s spouse’s benefit. Individuals may want to consult with a financial planner in the divorce process, and a family law attorney may help a client determine whether there are any hidden assets that could constitute marital property.
Source: Forbes, “The Big Money Mistake Divorcing Women Make“, Kerry Hannon , July 03, 2014