3 Simple actions to Take Now to Protect Your Retirement Assets in a New Jersey Divorce

If you’re considering divorce or already started the divorce process, you might be concerned about losing any portion of your hard-earned retirement assets.

These can include traditional pensions, IRAs, Roth IRAs, Keogh plans, deferred compensation plans, stock options (ESOPS), annuities, and 401(k), 403(k), 457 and 403(b) plans.

In New Jersey, all assets that were acquired in either spouse’s name “during the marriage” are subject to “equitable distribution.” 

Assets acquired “during the marriage” includes those acquired from the date of the marriage (or earlier if the asset was intended to be for use during the marriage, such as a marital home) until the end date of the marriage.  The end date is generally the date that a Complaint for Divorce is filed with the Court.

The term “equitable distribution” does not necessarily mean that the asset is to be divided 50-50.  If the spouses elect to have the court divide the assets at a trial rather than by mutual agreement, the court would apply several factors enumerated in the New Jersey statute governing equitable distribution.

Fortunately, very few divorce cases are actually tried before a court.  The vast majority settle by mutual agreement, which affords divorcing spouses many more options when dividing their retirement and other assets.

Therefore, when you want to protect your retirement plans in divorce, here are 3 simple actions to take now, ideally, before any Complaint for Divorce is filed with the Court.

1.     Identify the type of retirement plan(s) to be divided.  Determine if you have a traditional pension plan, referred to as a defined benefit plan, and includes military, police and fire, and teacher’s pensions.  These pension plans are valued and distributed differently from “defined contribution” retirement plans, such as 401k plans and IRAs.

2.     Determine the date(s) when each retirement plan was established.  This is so that you can determine if your retirement plan commenced before or during the marriage. 

The portion of a retirement plan that predates the marriage or to which you contributed the complaint for divorce is filed is typically exempt from equitable distribution.  

Therefore, if your retirement plan commenced before the marriage, you should obtain copies of statements dated closest to the date of marriage, to the extent possible.  Depending on how when your retirement plan commenced, it might make sense to have an actuary quantify your premarital interest and any gains on that interest. 

3.     Calculate the “marital value” to be divided.  Marital assets are generally valued as of the date on which the complaint for Divorce was filed with the Court (unless otherwise mutually agreed).  You should consult with your lawyer to determine whether to hire an outside actuary to calculate the present value of the marital portion to be divided. 

4.     Consult with a competent and reputable financial advisor.  Before you reach a final agreement on the division of retirement assets, you should consult with a trusted financial advisor.  You could save money and aggravation by determining the nature and amount of any penalties, costs, and/or negative tax consequences that might result for the type of retirement assets to be divided.

If you are concerned about dividing your retirement assets in divorce, please contact us to schedule a time to meet with me for a complete evaluation and customized strategy to address your concerns.

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