As with all family law questions, there is no “one size fits all” answer regarding pension distribution. How a former couple’s marital assets are split can depend on a variety of factors. Typically, retirement accounts are one of the largest assets distributed between spouses following a divorce. Pensions, 401ks, 403Bs, traditional and Roth IRAs, deferred income, and any other monies that are allocated for retirement are subject to the provisions included in New Jersey’s equitable distribution statute.
In general, New Jersey’s equitable distribution statute requires that each party to a divorce receive a portion of the marital assets regardless of how the title to the asset is registered (i.e.- in one spouse’s name alone or in joint names), including a pension or other retirement account. Only the portion of a retirement benefit that was accrued during the coveture period (the date of marriage thru to the date of the complaint for divorce) is subject to equitable distribution. The portion of a retirement benefit/plan that predates the marriage or was contributed after the complaint for divorce is filed, are typically exempt from distribution. Such an account is typically divided using a Qualified Domestic Relations Order (“QDRO”). A QDRO is a court order that directs the administrator of a pension or other retirement asset to distribute a portion of the account to another party following the dissolution of a marriage. Although a QDRO must be signed by a judge, it should be negotiated by the divorcing couple through their respective attorneys or other means. Prior to entering into a QDRO, however, a number of factors must be considered.
Since each individual’s situation can change unexpectedly, an alternate payee has the best chance of ensuring that the full benefit to which he or she is entitled is actually received in the future during QDRO negotiations. A QDRO will usually provide a formula used to determine the participating spouse’s vested interest or accrued benefit in a pension or other retirement plan. This formula will then be used to determine when an alternate payee is eligible to begin receiving payments from an ex-spouse’s pension.
In many cases, the parties to a divorce may not have the ability to choose the commencement date of pension or other retirement payments for the non-participating spouse in a negotiated QDRO. Instead, the alternate payee may be required to wait to receive pension payments until the participating spouse reaches a specified retirement age. Because of this, any future cost of living adjustments and the effect early retirement payments or subsidies may have on a non-participating former spouse’s rights should be negotiated before the divorce case is finalized and also before a QDRO is submitted to a family law judge. Similarly, a well-negotiated QDRO should establish the effect a potential pension loan will have on the non-participating spouse’s share of the retirement funds. Through effective negotiation, a QDRO should preserve each party’s right to his or her retirement benefit.
Pension rights of survivorship are another important factor to consider following a divorce. For example, what happens to the alternate payee’s benefit if he or she passes away after commencement of pension payments? Likewise, a non-participating spouse must be careful to protect his or her interest in a former spouse’s pension in the event of the participant’s death. Unfortunately, doing so after a QDRO is entered by a court is not always easy. And, there are numerous retirement benefit plans that simply do not allow for a survivorship benefit to a non-spouse, such as the New Jersey Police and Fireman’s Retirement System (PFRS)! Basically, if you are the former spouse of the police officer, if the police officer dies before you, your right to receive your share of that pension is gone! There are other ways to try and safeguard against the economic inequity this provision can cause. The use of life insurance is one method.
Although a QDRO is useful for dividing retirement assets, pension and other accounts may not always be subject to such an order. Instead, former spouses may agree in a marital settlement agreement (“MSA”) that the participating party will maintain ownership of his or her pension or other retirement account in exchange for accepting a smaller share of the couple’s other assets at the time of their divorce. For more information regarding successfully negotiating a QDRO or MSA in New Jersey, you should contact a skilled family law attorney.
For quality representation and helpful answers regarding your family law questions, do not hesitate to call the New Jersey divorce attorneys at Goldstein Law Group today at 732-967-6777 or contact our dedicated lawyers through our website.
More Blog Posts:
Will I be Required to Pay Spousal Support (ALIMONY) After My New Jersey Divorce?, April 27, 2015, New Jersey Divorce Lawyers Blog
How do I Modify or Terminate an Alimony Award in New Jersey?, April 25, 2015, New Jersey Divorce Lawyers Blog