You’ve worked diligently for years and accumulated a healthy nest egg for retirement.  But now it appears divorce is a real possibility.  Naturally, you’re concerned about whether your spouse has a claim on any of your retirement benefits.

The short answer, as with any legal question, is that it depends.

Generally, in New Jersey, all assets acquired during the marriage, regardless of which spouse holds title, are subject to being divided in divorce.  This doesn’t necessarily mean fifty-fifty, however.

The amount each spouse ultimately receives is generally determined on a case by case basis by applying a number of factors listed in the New Jersey Equitable Distribution Statute.

In any event, here are 5 actions you can take right to protect your retirement in divorce:

1.          Make a list of all retirement accounts you have. 

These would include traditional pension “defined benefit” plans, such as police and fire, teacher’s pensions, or other types of government pensions, and “defined contribution” plans, such as 401k plans and IRAs.

2.          Determine whether you started any retirement plans before you were married.  

Generally, the portion of a retirement plan started before the marriage would be exempt from dividing with your spouse.

Therefore, if you started a particular retirement plan before the marriage, you should obtain copies of statements from closest to the date of marriage.

The earlier in time before the marriage you started in the plan, the more it might make sense to use an accountant to quantify the value of your premarital interest – and any gains on that interest.

3.          Determine the current value of each retirement plan.

For traditional pension plans, obtain the most recent statement of accrued benefits.

These are typically sent to you annually or twice per year by your plan administrator.  You should also be able to access them online.

For “defined contribution” plans, obtain copies of your most recent statements. 

4.          Calculate the marital value of each plan.

Marital assets are generally valued as of the date on which the divorce complaint was filed with the Court.

Consult with your lawyer to determine whether to hire an outside accountant or actuary to calculate the present value of the marital portion to be divided.

5.          Determine any retirement accounts of your spouse with comparable value.

If your spouse has any retirement accounts in his or her name, determine if any are of equal or comparable value to yours.

If so, the retirement assets can be distributed by “present value offset. ”

This means that the spouse who earned the retirement account keeps it and the other spouse receives another marital asset of equal value in return for waiving his or her interest in the account.

The same method can be applied to other marital assets of equal or comparable value to your retirement plans.

It’s very important, however, to obtain competent tax and legal advice when distributing retirement in divorce.  If the division is not done properly, there can be a steep price to pay in taxes, penalties or an unintended amount of the asset going to your spouse.

If you are concerned about dividing your retirement or other marital assets in divorce, please contact us to schedule a personalized consultation.