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Dividing retirement accounts during a divorce

When New Jersey residents divorce, asset division is often one of their top concerns. In addition to dealing with who gets the house and how bank accounts are split up, retirement accounts will also have to be divided. It is essential that individuals handle dividing a retirement account correctly during their divorce, or they could end up being on the hook for early withdrawal fees, large taxes or giving up more of their account than they intended.

The simplest way to handle these issues is to either change the name on a retirement account or, if an account is being split up, transfer funds from one IRA to another. It is important to note that a transfer of funds will only be tax-free if it is a part of a divorce decree, separate maintenance or written agreement incident to a divorce. Transfers that are done for temporary support or as part of a separation will be subject to taxes and transfer fees.

It is also important for people to specify percentages when they put their intention to transfer funds in writing instead of specific dollar amounts. If someone has a retirement account with $50,000 and they state that they will transfer $25,000, instead of saying 50 percent, and stocks associated with the account drop in value, they would be responsible for transferring the stated amount, no matter how little money was left in the account after doing so.

In addition to dividing up retirement accounts, there are a number of complex issues that will need to be dealt with during a divorce. A lawyer could let someone know what to expect and explain their rights according to New Jersey state law.

Source: Fox Business, "How to Split up Retirement Assets in a Divorce", Marilyn Bowden, September 16, 2013

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