For many couples, pension and retirement funds can be among their most valuable assets. Even couples with substantial wealth often fund their retirement accounts to the maximum extent the law allows them to take advantage of favorable tax treatment.
Dividing pension and retirement benefits in a Hackensack high-asset divorce can be extremely complex. The skilled high-net-worth divorce lawyers at O’Cathain Law Group Family Law Department have the experience and financial acumen to ensure a fair division.
Money either spouse earned during a marriage is marital property. When a spouse’s employment benefits include a pension or 401k plan, stock options, or deferred compensation arrangements, these also are part of the marital property. Similarly, IRAs and other individual retirement plans are marital property when the money that funds them is earned during the marriage.
Both spouses are entitled to a fair portion of retirement benefits, even if they did not earn any of the income deposited into the accounts. However, if one or both spouses entered the marriage with a pension or retirement benefits, that portion of their benefits would be considered separate property and not subject to division.
New Jersey Statutes § 2A:34-23.1 requires all marital assets to be distributed equitably upon divorce, based on multiple factors. An equitable distribution does not necessarily mean that retirement benefits will be split evenly between the spouses—it means that if a judge must divide them, they will order a division that seems fair considering the relevant circumstances. A Hackensack high-asset divorce attorney could ensure that the judge is aware of factors that might favor a generous award to one spouse when dividing pension and retirement benefits.
However, couples who wish to avoid the uncertainty of a judge’s evaluation can settle the division of their property and retirement benefits themselves. Mediation, another form of alternative dispute resolution, ensures confidentiality and allows the couple control over the outcome. Mediation, with advice of counsel, is particularly advantageous for couples with substantial wealth who wish to keep their financial affairs out of the public eye.
Interests in employee pension plans and employer-sponsored retirement savings plans like 401ks and 403b plans are typically divided when a high-net-worth couple divorces in Hackensack. These are complicated transactions because the spouses may not have access to the funds until they reach retirement age without incurring a tax penalty, which the parties should try to avoid. In addition, it is usually necessary to work with an accountant or actuary to establish the future value of the fund.
In addition, these funds are governed by the federal Employee Retirement Income Security Act (ERISA). The law prevents a fund administrator from paying the account benefits to anyone but the owner or, if the owner dies, to the designated beneficiary. The owner of the account could take out a portion of the funds and pay it to the spouse in a divorce, but the withdrawing spouse would be liable for any taxes.
The better approach is to obtain a Qualified Domestic Relations Order (QDRO). This legal document authorizes the plan administrator to pay an agreed portion of the funds to the former spouse. It also protects the non-owner spouse from malfeasance by the owner spouse, such as withdrawing the money and leaving the recipient spouse with an interest in an empty account. The issues surrounding QDROs can be complex, so it is critical to work with a lawyer with experience negotiating and executing them.
High-asset families often maximize contributions to IRAs and SEPs to save for retirement and defer taxes. Dividing these assets is simpler than dividing defined benefit accounts. In most cases, the owner spouse directs a portion of the account to be paid to the recipient spouse, who rolls the money over into their own tax-deferred retirement account.
Executives, professional athletes, and entertainers often have complex compensation packages that include deferred compensation due at retirement. It can be challenging for a spouse to obtain a fair share of these plans without the help of a sophisticated divorce attorney and skilled financial professionals. Our Hackensack lawyers have the knowledge and network to ensure a reasonable distribution of these retirement benefits.
Pensions for military personnel and public sector employees have their own specific rules. Again, it is important to work with an attorney who is familiar with the specific requirements that apply to these assets.
Dividing retirement benefits is a critical part of the property settlement process during divorce. It is important that it be done with care to ensure funds are available at retirement and to avoid expensive tax consequences.
The lawyers at our firm are skilled at dividing pension and retirement benefits in Hackensack high-asset divorces. Schedule a consultation with the trusted legal team at O’Cathain Law Group Family Law Department today.