In many divorces, the most valuable assets may be something that you do not think about very often. But these assets can have a big impact on your life now and in the future.
The Traditional ‘Pension Plan’ If you work for a large corporation or the government, you may have a pension plan which will pay you benefits when you retire. A pension plan is an employee benefit. The company agrees to make regular contributions to a pool of money set aside to make payments made to employees after they retire. The employee does not ‘own’ any part of the pension plan, but receives payments from the plan.
The two types of pension plans are ‘defined benefit’ plans and ‘defined contribution’ plans. The basic difference is what each plan promises its participants.
When you get divorced, the right to get payments from the pension plan will be divided
between the husband and the wife. Almost always, you will need a Court Order, called a
Qualified Domestic Relations Order (called a ‘QDRO’ for short), to tell the pension plan administrator how to divide the payments.
401(k) Plan A 401(k) plan is a company-sponsored retirement account to which
employees can contribute income, while employers may match contributions. It is named after the section of the Internal Revenue Code which controls this kind of plan.
In divorce, both traditional and Roth 401(k) plans are treated about the same. You will need a QDRO to divide up the 401(k). If the QDRO is done correctly, you will avoid some very expensive tax problems.
IRA – Individual Retirement Account These are pretty useful retirement accounts, and you own it and control it. You get a reduction in income for the money you put into the IRA (up to the yearly limit), and you can invest it in a wide variety of types of investments. You don’t pay taxes on the money until you withdraw it.
What Happens to Pension and Retirement Assets In Divorce In New Jersey, the general rule is that assets that you and your spouse have gained while you are married, will be equitably divided when you get divorced. The basic law is set out in N.J.S.A. 2A:34-23.1 – Equitable distribution criteria. What this means in practical terms is this: The part of the pension asset that was earned during the marriage will be divided equitably (‘fairly’) between the husband and wife.
You need to take a hard look at your pension assets and your spouse’s pension assets
when getting divorced. Gather up the most recent statements for all of the pension assets, and talk to your divorce lawyer.