How Is My 401K or Pension Divided In A New Jersey Divorce?
When folks come into my office looking to hire myself or one of my associate attorneys to represent them in a divorce, retirement assets are almost always an issue. While retirement vehicles such as a 401K are relatively simple to divide, a pension gets complex for even the most seasoned divorce lawyer. In either case, your attorney must obtain a QDRO (“Qualified Domestic Relations Order”) in order to effectuate the division of a retirement asset.
Simply put, retirement monies are considered to be a marital asset that, upon divorce are subject to equitable distribution. So by way of example, let’s say the wife has no retirement but the husband has a 401K worth $200,000. In a New Jersey divorce case, the wife would be entitled to half of the “marital coverture period.” In other words, the wife would have a right to any monies accumulated from either the date of the marriage or when her husband (or his employer) first started funding the 401K. In our example, let’s say the husband started his job one year into the marriage and that is when the 401K contributions began. If the wife then files for divorce in New Jersey, the date that the Complaint for Divorce was filed in the Superior Court of New Jersey would be the “cut off” date. Any contributions after the “cut-off” date would be the Husband’s sole property. In sum, if the 401K was worth $200,000 on the date that the wife filed for divorce, the wife should receive $100,000 of the 401K. However, a QDRO is necessary to achieve this. The QDRO process is typically handled after the divorce has been finalized.
A QDRO is a court order executed by a judge of a New Jersey Family Court that instructs the pension plan administrator to separate the amount due to the other spouse. The QDRO is important for a number of reasons. First, by dividing a qualified retirement asset with a QDRO, the spouse who is receiving their share will not face any tax consequences when receiving her share. Otherwise, she would face approximately 40% less net money due to an assessment of taxes and penalties that would normally occur when an individual prematurely liquidates a qualified retirement asset. Second, without a QDRO, the retirement plan administrator will simply refuse to segregate the asset absent a court order.
Sometimes during divorce negotiations, the parties shall agree to allow one spouse to retain all of their retirement assets in exchange for another asset. I recently had a case wherein I was able to negotiate a divorce settlement that allowed my client to retain the former marital home in exchange for the husband keeping his entire pension. However, we first had to hire an actuary who calculated a present day value of the pension. This was necessary in order to ensure that the deal was a fair and equitable one. Of course, the house was appraised as well.
In my 20 years as a divorce attorney, I have had numerous clients hire my law firm to handle their QDRO, sometimes years after the divorce is over. If you find yourself in this situation, please do not hesitate to contact my office so we may ensure you receive whatever money you are due. As my divorce law firm only handles family law related matters, you shall have the assurance that this complicated process shall be done correctly and efficiently.
Below, please find a sample QRDO. Thank you.
_____________________, Esq. ID #____________
LAW OFFICES OF EDWARD R. WEINSTEIN, LLC
Weinstein Professional Building
214 Highway 18 North, Suite 2A
East Brunswick, New Jersey 08816
Attorneys for _________________
SUPERIOR COURT OF NEW JERSEY
CHANCERY DIVISION – FAMILY PART
DOCKET NO.: FM-____________
QUALIFIED DOMESTIC RELATIONS ORDER
This Order is intended to be a Qualified Domestic Relations Order (“QDRO”) pursuant to section Section 206 (d) (3) of the Employees’ Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1056 (d) (3).
The plan to which this Order applies is the _______________________________ (hereinafter the “Plan”).
1. The Participant’s name and last known mailing address is:
2. The Alternate Payee’s name and last known mailing address is:
3. The parties were married on ______________ and were separated on _______________. The parties were divorced on _______________________.
4. This Order assigns the Alternate Payee ____ percent of the marital portion of the Participant’s interest in the Plan up to the date of the parties’ (separation/divorce), where the marital portion is defined as:
A fraction of the numerator of which is the benefits
accrued by Participants under the Plan from the date
of the parties’ marriage to the date if their (separation
/divorce), and the denominator of which is the total
benefits accrued by Participant under the Plan up to
the date of the parties’ (separation/divorce).
Hereinafter, _____ percent of the marital portion shall be referred to as the Alternate Payee’s share.
5. All actuarial equivalents under this Order shall be based upon the 1971 Group Annuity Mortality Table and a seven percent (7%) interest rate.
6. Alternate Payee may elect to commence receipt of their benefits before Participant commences receipt of benefits, provided, however, that Alternate Payee may not commence receipt of benefits before Participant has, or, in the event of Participant’s death, would have attained the “earliest retirement age” as the term is defined in ERISA § 206 (d) (3) (ii).
7. Alternate Payee must commence receipt of benefits no later than the date upon which Participant commences receipt of benefits.
8. If Alternate Payee commences receipt of benefits on the date Participate commences receipt of benefits, Alternate Payee shall receive their share of the maximum benefit to which Participant is then entitled under the Plan, regardless of the option elected by Participant.
9. If Alternate Payee commences receipt of benefits before Participants commences receipt of benefits, Alternate Payee shall receive their share of the maximum benefit to which Participant would have been entitled had he retired on the date Alternate Payee commenced receipt of benefits. The Plan does not provide an early retirement subsidy.
**CHOOSE 10 (a) OR 10 (b)**
10. (a) Alternate Payee’s monthly benefit pursuant to ¶¶ 8 or 9 shall be paid as a monthly annuity based upon Alternate Payee’s mortality and payable to (him/her) for (him/her) lifetime, and shall be actuarially equivalent to the pension Participant would have received under the normal form of benefit payable.
10. (b) The monthly benefit payable to Alternate Payee pursuant to ¶¶ 8 or 9 shall continue until the earlier of the death of the Participant or Alternate Payee, except that if Participant dies prior to having received 60 monthly payments, payments shall continue to be made to Alternate Payee until (he/she) has received an aggregate of 60 payments. If Alternate Payee survives Participant, in no event shall Alternate payee receive more than 60 pension payments, regardless of the benefit option elected by Participant.
11. Nothing in this Order shall be construed to require the Plan to:
(a) provide and type of form of benefits, or any option, not otherwise provided under the Plan,
(b) provide increased benefits (determined on the basis of actuarial value), and
(c) pay benefits to the Alternate Payee which are required to be paid to another alternate payee under another order previously determined to be qualified domestic relations order.
This Court retains jurisdiction to supervise the disposition of Alternate Payees’s portion of the marital share of Participant’s benefit, and to make such further orders as may be necessary or appropriate to facilitate implementation of this Order.
Judge, Superior Court of New Jersey
WE HEREBY CONSENT TO THE FORM
AND ENTRY OF THE WITHIN ORDER
Attorney for Plaintiff
Attorney for Defendant