If you are getting a divorce, retirement assets may be one of your core concerns. Whether you are looking to get your share of your spouse’s assets or trying to protect your own, it is safe to assume that some type of division is likely to take place.
Unless you and your spouse agree not to split retirement funds at all, New Jersey law considers them to be marital assets. In order to split certain retirement assets, you may need a Qualified Domestic Relations Order.
QDROs are sometimes necessary to dispense retirement assets in a divorce. If the terms of the divorce agreement state that the non-participating spouse should get a portion of the retirement account, you and your spouse may need to prepare a QDRO and have a judge sign it. The QDRO is a document that states the details of the distribution.
When you need a QDRO
You do not need to obtain a QDRO in every circumstance. QDROs are generally only necessary if you are dealing with a defined benefit plan or defined contribution plan. These include pensions, 401(k)s, 403(b)s, 457s, profit-sharing plans, thrift plans and money purchase plans. If you do not use a QDRO to divide these types of retirement benefits, there may be tax implications or early withdrawal penalties.
A QDRO is not necessary for dividing IRAs, government pensions, deferred annuities or deferred contribution plans. If you are dividing a plan that is not qualified for a QDRO, you may simply split it up using a regular court order or according to the terms of the plan agreement.
No matter whether you need to use a QDRO, splitting up retirement assets can be complex. You must consider the current and future value of the plan, how to divide it and how much the non-participating spouse should get.