Another year is about to begin, and the new year may mean a divorce for many couples in New Jersey. More people typically file for divorce in January than in any other month. Another issue that typically comes to the fore in January concerns taxes and personal finances in general. When divorce and taxes are combined, frequent questions involve who is entitled to what assets and how taxes will be implicated?
Many people have a significant portion of their financial assets in 401(k) accounts. Amounts contributed to those accounts are typically considered marital property and are subject to asset division in a divorce procedure. If a prenuptial agreement exists, this may dictate the split of these assets. New Jersey is an equitable distribution state, which means that assets are not automatically subject to a 50/50 split.
Another concern regarding 401(k) splits may be how to avoid the early withdrawal penalties. A Qualified Domestic Relations Order (QDRO) issued by the court allows an employer to move funds between the parties without incurring any penalties. Any possible tax liability is also avoided. The biggest tax change to be aware of is that alimony is no longer taxable to the recipient since the passage of the Tax Cut and Jobs Act of 2017. The alimony piece of the law went into effect Jan. 1, 2019.
There are many financial issues to be addressed in a divorce in New Jersey. It is beneficial if a couple can come to an agreement on the division of assets, as this can save them time and money. Consulting with an experienced family law attorney can also provide a second set of eyes to help ensure that all bases have been covered.