Retirement assets are a paramount concern for many people in New Jersey who are in the midst of a divorce. It has recently been reported that baby boomers are divorcing at increasing rates, and when people divorce in their fifties or later, the division of marital assets is likely to affect their retirement lifestyles.

People who divorce near retirement age are likely to have a retirement portfolio that was meant to support retirement expenses as a couple, and funding two separate retirements with that same pool of assets will be difficult. There are a number of things to consider when dividing assets with retirement on the horizon.

1. Assess the tax implications of retirement assets. Many couples may have several different retirement assets – from a 401(k) to a Roth IRA to a pension or stock option plan. In addition to the value of these assets at the time of divorce, and their estimated value at the time of retirement, it is necessary to account for tax liabilities. For example, a 401(k) will be taxed when it is withdrawn during retirement. A Roth IRA will not be taxed when it is withdrawn. For a spouse who receives a portion of his or her ex’s 401(k) or 403(b) during divorce, there is a one-time window in which it is possible to withdraw money without incurring the typical 10 percent tax penalty. If circumstances allow, it may be wise to do so and stash this away into an IRA.

2. Do not over value the marital home. Many people think that they should gun for the marital home in settlement negotiations. This is not always true, particularly when retirement concerns exist. For example, in New Jersey, the law requires that divorcing couples split assets fairly and equitably. If a couple has a $250,000 IRA and a $250,000 home, it is not necessarily wise to take the home and leave the IRA with one’s ex. This is because the future value of a home is difficult to assess, and with homeownership comes a number of expenses, among other issues.

Understanding tax issues and having a clear assessment of the value of assets as well as one’s retirement needs are only a few steps on the path to a reasonable division of assets. It is important to seek legal and financial counsel in order to make thoughtful decisions regarding retirement and divorce.

Source: Forbes, “4 Divorce Mistakes That Can Derail Retirement,” Marilyn Timbers, Aug. 21, 2013