Pensions in Divorce

When it comes to pensions and divorce in New Jersey, couples are understandably anxious – especially if they have been married for a particularly long time. Pensions can be one of the largest assets of a marriage, so it is normal for parties to wonder if their spouse is entitled to their pension in the event of a divorce.

Pensions and divorce can be a difficult topic for courts to deal with, primarily because these accounts are often ‘commingled,’ meaning they have both marital and separate property elements. Separate property is usually considered to be any property a spouse has earned prior to the marriage. Marital property is property earned during the marriage.

Couples are waiting longer to marry than ever, which means that most will have contributed in some way to their retirement accounts before they tie the knot and will continue to contribute to that account after the marriage.

Why is this important? Because only marital property is subject to division in a divorce. So, even if only one spouse has worked and contributed to a retirement fund during the relationship, the portion of retirement that was created during the marriage can be subject to division.

With this principle of separate and marital property in mind, it can be difficult to determine how much the earning spouse contributed to the account during the marital relationship, particularly if it is a defined-contribution plan. Sometimes, it will be necessary to obtain the balance of your retirement the day before the marriage and compare it with the present-day value and hire an accountant to determine what the value will be upon retirement to determine an appropriate percentage to share.

New Jersey is an equitable distribution state, meaning that courts will not necessarily divide property in half, but will consider all circumstances and do what they believe is equitable or fair.

Often, combining pensions and divorce complicates matters. It is not simply enough to get the court to order the division of retirement accounts, should that be its decision. You will need additional paperwork to ensure that the retirement account is property split between the parties. This is done through a Qualified Domestic Relations Order (QDRO, pronounced ‘quadro’). The QDRO is a specific document that must be approved by the family court as well as the plan administrator before payments can legally be issued to the non-earning spouse upon the earning spouse’s retirement. However, the spouse can receive the money in a way that makes him less dependent upon their spouse’s retirement, if they roll the money over into their own, personal retirement account. Sometimes, accounts do not even require a QDRO, like if you have an IRA. Any plan that is subject to the federal law called ERISA (Employee Retirement Income Security Act) will require a properly drafted QDRO. Regardless, if you are uncertain, it's best to contact the plan administrator of the account who will be able to give you guidance as to the legal requirements for a division.

QDRO’s can be complicated documents to draft, so it’s best to hire an attorney or private company to create these documents and ensure you get your fair share of any marital property retirement. It is crucial to transfer the retirement as soon as the divorce is final – losing access to that account can be a financial wound a party cannot afford. For example, if the contributing spouse dies before the retirement has been transferred, the money goes directly to that spouse’s estate, where it is subject to being in dispute in a probate matter.

You should also make sure that the decree and QDRO address things like loans that might have been taken out against the retirement, survivorship benefits, and addressing what happens to earnings or losses in a defined contribution plan. All of these can have significant financial implications down the line, particularly if the contributing spouse has accumulated a large amount of retirement income. Some pensions will disappear if the divorce has not addressed the issue of survivorship if the participant spouse dies before their pension payments vest.

There are many steps required before a pension can be divided during a divorce. Characterizing the property, calculating its value, and then – if the parties cannot agree – convincing the court whether and how the pension should be divided. Then, of course, there is the matter of ensuring that the court’s order is effected through the QDRO. Because of all these steps, it is advisable to hire an attorney to help you navigate the thorny topic of pensions and divorce.

If you have any questions about pensions and divorce in NJ, contact the Law Office of Peter Van Aulen for a free initial consultation today at 201-845-7400.