Some assets are easy for people to address when they divorce. They may belong to one spouse, and the other may have no interest in them. Some couples have already made arrangements for certain resources by signing prenuptial or postnuptial agreements.
Other assets can be more difficult to address. In some cases, an asset could be partially marital property and partially separate property. There could be challenges dividing certain types of assets. Spouses typically can’t jointly own real estate after they divorce in most cases. Other times, an asset could be theoretically divisible, but there may be concerns about losses triggered by dividing those assets.
Many successful professionals contribute to 401(k)s regularly throughout their working lives. They may worry about sharing those retirement savings when they divorce. What happens with retirement savings accounts like 401(k)s during New Jersey divorce proceedings?
Couples must establish if they are marital property
The first issue people need to address when discussing retirement savings accounts is the value of the account. They need to establish how much money is currently in the account and how much of that balance is marital property.
Contributions made prior to the marriage or after the valuation date for the divorce may remain the separate property of one spouse. Deposits made during the marriage, on the other hand, are likely subject to division in divorce proceedings. After determining the marital portion of the account, they then have to factor that amount into their property division negotiations.
Couples may need to split the marital value of a 401(k)
Some people can use other assets to balance out the marital value of a retirement savings account. Other investments, real estate and even high-value personal property can be worth an equivalent amount. People can potentially factor in the value of the marital portion of the account without dividing it.
Other times, splitting the account is the best solution possible. In such situations, the couple typically needs to wait until after the New Jersey family courts approve the final property division order. They can then use the details included in that order to draft a qualified domestic relations order (QDRO).
One of the attorneys assisting with the divorce usually puts this document together. After approval from both spouses and the courts, they can submit it to the plan administrator managing the 401(k). A QDRO allows people to divide retirement savings without risking text consequences or incurring penalties.
Understanding what may happen to certain valuable property during a New Jersey divorce can help people develop a reasonable property division strategy. Preserving high-value assets, like retirement savings, is a common goal set by those preparing for divorce in the Garden State.