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Valuation and Division of Retirement Accounts in a Mature Divorce
In my experience as a divorce mediator in New Jersey, the valuation and division of retirement and pension accounts is the most important item for those going through a mature divorce. We cover the topic of retirement assets as part of our Equitable Distribution discussions and for those experiencing a mature divorce it is one of the most challenging areas. Since retirement and pension accounts are handled differently, let's start with the simpler retirement accounts and we'll focus on pensions in our next post. For items such as a 401(k), 403(b) or Employee Savings Plan we can ascertain their current worth rather easily by going to a website or asking our financial advisor but while it may seem simple, we need to account for a few variables.
First is the tax treatment. Since these accounts are tax-deferred, when one of you receives an Equitable Distribution of these types of assets, you will owe taxes on them when you take them out upon retirement so in reality they are worth about 25% to 33% less than their current value. An important consideration if you're trading off retirement assets for cash in a checking account as that cash can be used income tax-free. Next is the volatility. Investment accounts fluctuate in value on a daily basis. Say your soon to be ex worked at BP and their retirement portfolio consisted entirely of company stock (Think this doesn't t happen? Ask the ex-employees of Enron). Then while going through an mature divorce in exchange for a savings account of similar value you received 100% of the stock. British Petroleum's stock is down more than 50% over three months and given your divorce may take a few months to get through the courts, you would be left holding a retirement assets that's worth half of what it was when you first started divorce mediation. For someone going though a mature divorce that can have a huge impact on their ability to retire as they may not have many or any working years left to recover from such a financial disaster.
By working with a divorce mediator (especially one that has a financial background like myself) we can help you and your spouse come to a fair and equitable distribution of your marital assets that works for both of you now and in the future by making sure each of you has a combination of assets that meets your short and long term needs. Perhaps one of you still has a few years to work and one of you is retired so in that case one of you may wish to take a larger share of retirement assets and one take more cash or we can split all assets 50/50 as the choice is really up to you. as after all, it is your divorce. You may be getting a divorce but that doesn't mean your life is over, far from it so we need to make sure that you have the resources you'll need to live well into your Golden years and divorce mediation can help you do that.
To file for divorce in New Jersey under no-fault grounds, the couple must have been living separate and apart in different residences for at least 18 consecutive months. There must be no hope of reconciliation in the marriage.
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