In New Jersey, an early distribution from any qualified retirement plan may eventually result in severe income tax penalties. These would be levied on the spouse receiving the distribution from the plan. In some instances, it can also result in tax penalties for the spouse who is the account holder of the plan.
If you have quality legal advice, your lawyer can petition for a Qualified Domestic Relations Order. New Jersey residents can use this order to divide retirement assets without tax penalties for either spouse. This is a court order that requires the administrator of the retirement plan or plans to divide the account or accounts following a percentage that is predetermined by the court. The percentage that is being received by the non-account holder can be either moved into a newly established account with the same retirement company or can be rolled into an IRA.
What Plans Are Eligible?
In the state of New Jersey, there are various types of retirement plans that can be divided by a Qualified Domestic Relations Order. These plans include any 401K plans, an ERISA qualified pension plan, a Keogh plan, any defined contribution plans, as well as thrift saving plans. Profit sharing plans, defined benefit plans, tax sheltered plans, and money purchase plans are also eligible for a QDRO. There are some types of retirement plans that are not eligible for a Qualified Domestic Relations Order in New Jersey. These include IRA's.
Other Ways Of Division of Assets During NJ Divorce
Another way some divorcing parties avoid this conflict is to have their lawyers negotiate a property settlement agreement. In this instance, one spouse will give up his or her right to the percentage of pension benefits to which they are entitled. However, in exchange for giving up the benefits, the spouse will receive another asset of equal value; usually some form of property jointly owned by the couple. This is another way to prevent tax penalties from early division of pensions and other retirement assets.
Contact Villani & DeLuca, P.C.
As with any divorce related issue or expense, it is important and rather essential to have the advice and input of an experienced lawyer. Our law offices serve both Ocean and Monmouth County and are here to guide and assist you as you navigate the murky waters of divorce and divorce settlements. Once your divorce is final you do not want to have any regrets or have lost out on anything to which you were entitled under the retirement distribution laws in the state of New Jersey. Additionally, you do not want to incur any tax related consequences as a result of mishandling of the retirement benefits distribution.