Getting divorced can be difficult from an emotional standpoint, but it can be just as trying from a financial point of view. The process of dissolving a marriage can be especially intimidating for individuals close to retirement. However, it is possible for people going through a New Jersey divorce to protect their financial futures.
Retirement accounts are usually the biggest liquid assets in divorce proceedings. The top issue related to distributing retirement assets is taxation. A transfer from one person's IRA to that of his or her future ex has to be done properly to prevent an unintended distribution and accompanying penalties.
The division of an IRA should be done within a year of a couple's divorce settlement and must be classified as an incident to divorce to prevent an early withdrawal penalty. Any transfers that take place later than this are subject to a review by the Internal Revenue Service. In addition, for a divorcing couple who wishes to divide a pension, defined benefit plan or 401(k), a qualified domestic relations order (QDRO) is required. Both individuals need to know and state clearly the category that every retirement asset falls under so as to prevent unnecessary issues down the road.
Although dividing assets such as retirement accounts can be tricky, the right legal guidance can help people to successfully navigate this process and achieve fair settlements. If the parties getting a divorce can find common ground, they may choose to engage in divorce mediation or direct negotiations. If not, a New Jersey judge will end up having to decide how their assets will be divided, a prospect that could leave one or both parties unhappy with the final result.
Source: Forbes, "Divorcing? How to Split Up Retirement Nest Eggs", Duncan Rolph, Nov. 23, 2016