Retirement Plans: Is It Better Financially to Stay Married?
Mount Laurel Divorce Attorneys • Marital Asset Division
It’s not unusual for someone to wonder whether or not they can afford divorce — after all, divorce will impact your monthly income, health benefits, credit score and taxes. Additionally, if you get a divorce you’ll need to divide your marital assets. Since New Jersey is an “equitable division” state, the court will determine what it believes to be a fair and equitable division of marital property. Practically speaking, this means the court may divide your savings accounts, investments or business assets it considers marital property.
For these reasons, couples that have been married longer and have older children in school may decide divorce isn’t in their best financial interests at this time. However, if you are in debt and considering bankruptcy, divorce may be in your best financial interests.
Retirement Plans and Divorce
An important consideration in determining if divorce makes financial sense for you at this time is how any savings or retirement plan assets will be divided. In cases in which only one spouse has a 401(k) or a retirement plan in place, a divorce may substantially change the amount of savings you had initially planned for. New Jersey state law considers retirement accounts to be marital property. Consequently, any retirement plan is subject to a Qualified Domestic Relations Order (QDRO).
In essence, a QDRO ensures that the nonparticipating spouse in a retirement plan will receive a portion of the assets contained in the plan. The plan’s administrator must be notified — usually through paperwork prepared by an attorney — indicating the amount the nonparticipant spouse is entitled to receive.
Qualified Domestic Relations Orders and the Finances of Divorce
If you don’t work or have very little money in your 401(k), you need to consider what makes financial sense if your spouse has a retirement plan or substantial savings in his or her 401(k). While you are entitled to receive a portion of your spouse’s retirement plan benefits, you cannot simply take the money owed you without incurring a substantial financial penalty.
Secondly, the value of a QDRO will grow as the plan benefit grows over time. In this way, a divorce and QDRO will provide you with some measure of financial security in your later years, but your quality of life may suffer now if you live alone and must support yourself as a result.
If you are the working spouse and stand to lose some of your pension plan assets through a QDRO, staying married may, in the end, make more financial sense. Combined earnings and Social Security benefits may mean the difference between a fairly comfortable retirement and one in which you face a certain amount of financial stress from having to live alone.
Contact Mount Laurel Divorce Attorneys at Taylor & Boguski
There are a number of financial issues to take into consideration when considering divorce. How your retirement plan will be affected is only one consideration. In order to properly weigh the relevant factors involved, it’s important to talk to an experienced divorce attorney who can explain the division of marital assets, the division of marital debt and how your business or taxes will be affected as well.
If you are considering divorce but are facing serious financial problems, contact Mount Laurel divorce attorneys at Taylor & Boguski today to learn how we can help you.