The Allocation of Retirement Assets in a New Jersey Divorce Settlement

Can Retirement Assets Be Divided between the Parties?

The Allocation of Retirement Assets in a New Jersey Divorce SettlementYour marriage is irretrievably broken and divorce is the best pathway forward. You’ve built up a substantial retirement plan, but it’s only in your name. Is it protected from distribution to your spouse in the property settlement? Are there any special conditions that must apply?

The Right to a Portion of Qualified Retirement Plan Assets

Under the equitable distribution principles in place in New Jersey, both parties to a marriage are entitled to receive a portion of any assets acquired during the marriage, regardless of how the property is titled. Accordingly, the fact that all retirement assets are held in the name of one spouse will not prevent those assets from being divided between the parties. One caveat—only those retirement assets that were contributed and accrued during the marriage will be subject to equitable distribution. Any retirement assets contributed or accrued before the marriage are generally exempt.

The distribution of retirement assets must be carefully handled or one or both parties may incur tax consequences. As a general rule, the way those potential problems are avoided is with the use of a Qualified Domestic Relations Order (“QDRO”), a court order that directs the administrator of any retirement assets to transmit a portion of them to the other spouse. The QDRO must be signed by the judge to be legally binding.

A QDRO is not required, however. The parties may include language in the marital settlement agreement allowing the owner of the retirement funds to keep all of them, typically in exchange for conveying other marital property of similar or equal value to the other spouse.

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