Dividing assets in a divorce can carry complex tax implications, particularly when retirement assets are involved. Generally speaking, early withdrawals from qualified retirement plans such as 401(k)s and IRAs are both taxed and penalized by the IRS. That is because these plans are not meant to be withdrawn from before you are of “retirement age”, which is 59 1/2 in the U.S.
Qualified Domestic Relations Orders or QDRO’s are a tool for those wishing to split a retirement plan without the damaging tax penalties associated with early withdrawal.
Call our office today if you have specific questions or concerns regarding your divorce, division of assets, or division of retirement assets to speak with a member of our legal team in a free and confidential consultation.
What is a Qualified Domestic Relations Order in Bergen County, NJ?
Qualified Domestic Relations Orders (QDROs) are court orders which allow qualified retirement plans to be divided amongst divorcing parties without incurring tax penalties. In order to be granted, a QDRO must go through both the New Jersey court system and the plan. In other words, our Bergen County division of asset attorneys will not only be filing a request in court, but working with the retirement plan company (such as Fidelity, Schwab, Vanguard, etc.) to see this request through.
QDROs name two parties: the “participant” and the “alternate payee”. The participant is the plan beneficiary who is in possession of the retirement assets. The alternate payee is the individual who is eligible to receive a portion of that benefit through a QDRO.
Qualified plans which require a QDRO for a division of assets include but are not limited to:
- Traditional IRAs
- Profit Sharing Plans
- SIMPLE IRAs
- SEP IRAs
Ridgewood Divorce Attorneys Discuss the Importance of QDROs
Our Ridgewood divorce attorneys generally recommend filing for a QDRO as soon as possible if one is required in our client’s divorce proceedings. This is for several reasons:
- QDROs are required by Federal Law in order to divide retirement assets during or after divorce proceedings. In other words, divorce paperwork is not sufficient to divide retirement assets, even when the divorce agreement has explicit terms to split the retirement assets. Both the divorce agreement and the QDRO must be in good order
- If the participant retires before a QDRO is executed, their benefits will begin to be paid out. Successfully filing a QDRO at this point is not only more difficult, but may also be too late to recoup benefits which have already been withdrawn
- If the participant dies, the listed benefactor on the retirement plan will receive control of the retirement plan and the alternate payee may no longer have the right to file for a QDRO
- The participant may also remarry. If he or she gets a second or subsequent divorce, that spouse may file for a QDRO as well. Whichever paperwork is filed and accepted first will take full affect
These laws may seem counter-intuitive or unfair, but keep in mind that retirement plans are some of the most heavily regulated and controlled financial accounts. Understanding and successfully filing for a Qualified Domestic Relations Order with the help of your attorney can be the difference between a financially secure retirement and walking away empty handed.
Contact our Hackensack Retirement Asset Division Lawyers Today
At The Law Office of Townsend, Tomaio & Newmark, our family law and divorce attorneys are led by partners who have all been distinguished as Certified Matrimonial Lawyers by the New Jersey Supreme Court. We take pride in using our extensive experience and knowledge to serve clients going through divorce proceeding in our local New Jersey communities including Ridgewood, Paramus, Teaneck, Fort Lee, Hackensack, and the greater Bergen County region. Dividing assets during a divorce can be messy and legally complex, with retirement asset division being possibly the most difficult to calculate and execute. Rely on our experienced team of divorce attorneys to protect your legal rights and secure your financial future.
Contact us online or through our Hackensack offices by calling (201) 397-1750 today for a free and confidential consultation regarding a Qualified Domestic Relations Order or any other divorce or family law matter.