You had an IRA before your divorce. Maybe you had it before you were even married.
Now your marriage is ending, and you're wondering: "How much of my IRA can my spouse actually get?"
The answer depends largely on when the money was accumulated and what happened to the account during your marriage.
An IRA can be subject to equitable distribution in a New Jersey divorce, but that doesn't necessarily mean your entire account is marital property.
If you contributed to the IRA during your marriage, the marital portion of the account may be subject to division.
If some of the account existed before you got married, things become more interesting.
Let's say you had $75,000 in an IRA on your wedding day. You continued contributing to the same account throughout a 15-year marriage, and by the time you're getting divorced, it's worth $400,000.
Your spouse doesn't necessarily have a claim to half of the entire $400,000.
The premarital portion may be separate property. But you need to be able to prove it.
Old account statements and other financial records can become extremely important when determining what existed before the marriage and what was accumulated afterward.
This is another reason IRA division can become more complicated than simply looking at contributions. Your account may have grown substantially because the investments inside it increased in value.
Determining what portion of that growth is associated with marital versus separate assets can require tracing the account's history.
The longer the marriage and the more activity in the account, the more important good financial records become.
Not automatically.
New Jersey follows equitable distribution, not an automatic 50/50 rule. The marital portion of your IRA becomes part of the larger financial picture along with your other retirement accounts, investments, real estate, debts, and marital assets.
That's why you shouldn't look at the IRA in isolation. Sometimes the way retirement assets are handled is part of a much larger settlement negotiation.
An IRA isn't necessarily divided the same way as a pension or 401(k).
Qualified employer retirement plans commonly require a Qualified Domestic Relations Order (QDRO). An IRA generally does not.
Instead, IRA assets awarded to a spouse in a divorce need to be transferred properly under the applicable divorce and tax rules.
That's important. Simply withdrawing money from an IRA and handing it to your spouse can create tax consequences that might otherwise have been avoided.
The transfer needs to be structured correctly.
This is one of the most common misunderstandings with retirement accounts.
"It's my IRA. It's only in my name."
That doesn't necessarily determine whether the money is marital property.
The more important questions are when the assets were acquired, where the money came from, and what portion can be identified as marital or separate.
If an IRA is a significant part of your retirement savings, don't agree to a division until you understand:
How much existed before the marriage, how much was accumulated during the marriage, how investment growth should be treated, and how the transfer will actually occur.
The numbers can be substantial, and a mistake involving a retirement account can follow you long after your divorce is over.
Until next time,
Steve