Planning for the future requires attention to many separate components. You will need to focus on the “big picture” of your overall goals, as well as having a narrower focus on the steps you need to take to achieve those goals. For most people, achieving these goals includes taking a close look at finances and making decisions about how to invest and save your money. Saving for retirement is a key part of making sure you can achieve your goals going forward, and married couples work as a team to build their assets for retirement. In the event of divorce, couples will have to divide all of their marital assets and debts. As saving for retirement is a long process that requires sincere effort and dedication, during a divorce, you may think about whether you will be forced to divide your retirement.
New Jersey is what is referred to as an “equitable distribution” state. During a divorce, a court will look to a list of factors included in the New Jersey statutes to decide how asset will be divided between the parties. The court will then make an equitable distribution of the assets to each of the spouses; you should note that equitable will not always mean equal. It is also important to understand that once property has been classified as a marital asset, it is subject to distribution, and most assets that are acquired during the marriage are marital assets. This is true even if only of the spouse’s names are actually on the account. This is often the case with retirement accounts or deferred compensation assets that one spouse gets through employment. However, even though the retirement account is associated with the name of only one of the spouses, the value of the account that accrued during the marriage is subject to distribution. In other words, whatever retirement was accrued during the marriage will be subject to division in your divorce.
Spouses should know, however, that there can be penalties and taxes associated with cashing out certain types of retirement assets. One alternative is to use a Qualified Domestic Relations Order, or “QDRO.” A QDRO is a document prepared by your attorney, signed by the judge, and submitted to the financial institution that holds your retirement account. This will allow the account to be divided without cashing out the account, thereby avoiding some of the penalties you would otherwise incur.
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