Retirement and Support Obligations in New Jersey
Are you concerned about you retirement assets in your divorce case? Learn which retirement assets will be considered in spousal and child support.
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How do judges decide how much child support to award?
New Jersey's courts must establish child support awards "as the circumstances of the parties and the nature of the case shall render fit, reasonable, and just." The courts try to provide children with the standard of living they would have enjoyed if their parents were married, instead of divorced or living separately. But judges also understand that this isn't always possible because of unexpected life changes.In
New Jersey courts follow the "child support guidelines," which are a mathematical formula, in deciding what amount of money is adequate to support the child and how much each parent can be expected to contribute.
It's important to remember that the right to child support belongs to the child, not to either of the parents. No parent can "trade away" that right for other assets in the context of a divorce settlement.
What is "income" for purposes of child support?
New Jersey child support obligations are based on gross income. "Gross income" means total income without any deductions for taxes or expenses. Another way of thinking about it is that gross income consists of the total financial resources available to the parents. New Jersey law provides a non-exclusive (open-ended) list of many different types of income.
The most commonly understood kind of income is compensation for services rendered—for example, wages, payment for part-time jobs, overtime, fees, tips, and commissions. Capital gains, interest and dividends, net gambling winnings, rent, bonuses and royalties are all also commonly understood to be income. Additionally, the U.S. Supreme Court has ruled that military pay and allowances are sources of gross income for purposes of deciding child support.
For those who own their own business, the business's income is defined as whatever is left over after deducting ordinary and necessary business expenses.
Then there are more obscure forms of income. Annuities, life insurance, personal injury or other lawsuit awards, disability payments, worker's compensation, unemployment compensation, severance pay, and unemployment benefits are all considered income, even though many people don't think of them that way.
Does New Jersey consider retirement funds a form of gross income?
Significantly, New Jersey does not exempt many kinds of retirement interests from the types of income that it uses to calculate total gross income for purposes of child support. The statute specifically characterizes "distributions from government and private retirement plans, including Social Security, Veteran's Administration, Railroad Retirement, deferred compensation, Keoghs and IRAs" as sources of gross income.
Will my child support obligation change if I retire early?
Possibly. If you want to modify (change) your child support obligation, you have to go to court and prove that there has been a change in circumstances. The changes have to be permanent, substantial (major), and unanticipated (meaning that they couldn’t have been predicted). If all you can show is that something might happen sometime in the future, the court won't modify the support award.
The New Jersey appellate courts have ruled that when a parent paying child support ("paying parent") voluntarily ends employment by retiring and then asks the trial court to reduce child support, he or she will have to prove that the advantages (based on the his or her age, health, finances, assets, and reasons for retiring) of the voluntary retirement and the reduction in income outweigh the harm to the children from the reduction in child support. The paying parent also needs to explain whether the children's needs (based on their age, health, assets, and standard of living) have changed and whether he or she has other assets that are sufficient to satisfy those needs. If the modification is not in the best interests of the child, the court won't approve it.
In one notable case, a husband divorced his wife and was ordered to pay a child support obligation for his two children. He was older when he married, and both he and his wife had expected that he would try to retire early. He was earning a very good living, but decided to retire, without penalty, at age 55. That decision greatly reduced his income, so he asked for a modification in the form of a reduction.
The husband's pension would have continued to increase if he'd continued working, but he retired anyway because he claimed he had health problems related to the stresses of his job. He didn't provide the court with any proof of those health problems, however. He also didn't provide enough evidence about his children's needs, or whether the advantages to him outweighed any harm that might have come to his children if their child support was diminished. Consequently, the court ruled that he wasn't entitled to a modification.
While it is possible to obtain a modification as a result of voluntary retirement, the courts have not been very receptive, except when very specific facts are proven.
What if my pension was already divided in a divorce?
The New Jersey appellate courts have decided that deferred pension benefits received by a parent have to be included when the lower courts calculate the child support award. In other words, pension benefits can't be excluded when the courts decide how much a pension beneficiary has to pay. This is true regardless of whether the pension was already equitably divided in a divorce proceeding.
The reason this isn't considered "double dipping" is that the parents can't meet the children's needs without utilizing the pension asset, and the children didn't enjoy the benefits of the equitably distributed share of the pension.
Can my 401(k) be used to calculate child support?
No. This is a special case. A 401(k) provided by your employer is not considered gross income for purposes of figuring out child support. This is because the money in your 401(k) is not the kind of income that you can easily withdraw and use to pay for your children's needs. Taking money out of a 401(k) prematurely, even if it's to pay for basic needs, results in substantial early withdrawal penalties and tax problems. That's why they're excluded from guidelines child support calculations.