New Jersey residents who are approaching or going through divorce are likely to have disagreements about financial matters. According to a survey conducted by the American Academy of Matrimonial Lawyers, the top things divorcing couples fight about are alimony, business interests and retirement accounts. When it comes to dividing 401(k) assets, couples can sometimes make mistakes. Here are a few things to keep in mind when splitting up a 401(k).
If one spouse has a retirement plan through his or her place of work, the only way for the other spouse to claim part of the funds is via a qualified domestic relations order, also known as a QDRO. Typically, an attorney will put the QDRO together and submit it to the judge for approval. It is a separate legal document from the divorce decree, but its terms are based on the divorce decree. A QDRO is required to split the assets in a 401(k) or a traditional pension plan.
A QDRO is not necessary to divide the assets in an individual retirement account whether it is a Roth IRA or a traditional IRA. Rather, for division of an IRA, the terms will typically be included in the divorce decree. Individuals should be careful, though, and not simply withdraw IRA funds and give them to the ex-spouse. Such an action is likely to be treated as a taxable event for the party making the withdrawal. A trustee-to-trustee transfer should be made instead.
In a case when a New Jersey couple is divorcing, an attorney with experience in divorce law may help identify assets and liabilities of the parties and negotiate the terms of the property settlement. An attorney might create a QDRO that meets the approval of the court or argue on behalf of the client during family court proceedings.