Just recently, our office completed two “Grey Divorces”. In one case, our client was approaching retirement age; in the other, our client had already retired. In addition to alimony and equitable distribution of real and personal property, our clients were concerned about the division of their retirement funds. In both cases, one spouse still worked and the other spouse held most of the retirement accounts in their name.

Our first client asked, “What happens to my retirement accounts upon divorce?” Our second client wanted to know, “What happens to our retirement accounts if most of them are in my name?”

All retirement accounts are subject to equitable distribution, from the date of marriage until the cutoff date. The cutoff date is the date one party files for divorce or a date on which the parties agree contractually. If a party contributed to a retirement account prior to marriage, then those contributions are not included in the marital pot, unless the parties agree otherwise.

Do you have to split your retirement account? It depends. If both parties have retirement accounts with roughly the same value, then the parties can agree to “each keep their own.” Parties may also negotiate away their right to the other spouse’s retirement funds if they want more personal or real property. A party otherwise entitled to seek alimony support may separately bargain for a greater share of the other party’s interest in the retirement accounts, in lieu of alimony.

It is also possible that the parties may adjust any financial differences between their retirement accounts out of one account, so that each may keep intact most of what they already have in their own name, and a tax free lump sum may be paid from one party to the other out of a single retirement asset.

In some cases, the wife may elect to keep the marital home and allow her husband to retain most of the value in their retirement accounts, with adjustments for taxes (the marital home is generally immune from taxation upon sale, whereas the retirement accounts are taxed upon invasion). We generally do not recommend this. It may benefit both parties to sell the marital home and split the proceeds from the sale, and also divide the retirement funds equally, so that each can walk away with retirement funds and have cash to buy another home.

If a party chooses to stay in the marital home, remember that the marital home still has maintenance expenses, and possibly a mortgage, on top of property taxes that will not decrease, whereas a retirement fund does not have these expenses. It is typically beneficial for the parties to find less expensive places to live or smaller homes. Remember that the retirement fund was created to fund the couple in one household. When the accounts are divided, that same amount now has to maintain two households and two lifestyles. For many retirees, that could mean working longer, downsizing, reducing spending, or working a part-time job to supplement their Social Security and private retirement benefits.

On the other hand, parties — who are over 18, competent, and will be fully informed in these matters by legal and financial experts — certainly have the right to proceed as they see fit. They have the absolute right to determine how their financial issues will be resolved, even if the legal and financial experts disagree with them.

If you have any questions regarding the divorce process and the effects of divorce on your unique situation, then we strongly advise you to consult with a licensed New Jersey attorney who has experience in divorce and family law.