When spouses divorce, they already have a complex process ahead of them, even in amicable cases. This process will involve paperwork, proper filing, and reaching an agreement about property and asset division Protect Your Assets With a Postnuptial Agreement, child visitation rights, and more.
In situations where the two parties are not willing or able to work together on a compromise, this process becomes even more nuanced, making dividing retirement accounts in divorce challenging.
Among the many assets that are subject to division in a divorce are retirement accounts. However, in Maryland, these assets do not need to be disbursed equally; instead, they are divided fairly, meaning that one spouse could receive more (or get to keep more of their own accounts) than the other.
Planning for how a divorce will impact retirement is a critical step along this process. Seeking legal counsel helps to ensure that you do not lose more in assets than what is fair.
Here is a summary of how retirement accounts are divided during a Maryland divorce and what you can do to preserve as many of your retirement goals as possible.
Can a Spouse Take Retirement Assets?
In short—yes, a spouse can claim some or even all of a partner’s retirement assets depending on the details of the case. However, it is also possible that none of a partner’s retirement assets will be available to their spouse, and the court cannot force disbursement in this situation.
To determine which retirement elements are eligible for division during a divorce, all parties will need to examine what qualifies as marital property as well as what each party’s standard of living will be once divorced.
Dividing Retirement Accounts in Divorce in Maryland
The court will determine retirement account division based on many factors. These include whether one spouse has a disability or cannot otherwise support themselves after the divorce (such as a stay-at-home mom who is not employed). Also considered will be how much of a retirement account’s balance is marital property.
If a person only began contributing to their 401(k) after marriage, all of that property is eligible for division. However, if they spend 20 years contributing on their own prior to being married, their spouse does not have access to those 20 years of funds.
The most common retirement accounts are divided during divorce as follows:
401(k) – Whether or not a spouse can claim 401(k) assets depends on whether the money is marital or nonmarital property. Any contributions made to the 401(k) after the legal commencement of the marriage are eligible for redistribution.
Contributions that occurred before the marriage belong to the account owner and will be left untouched. Withdrawing from a 401(k) before retirement can incur a penalty for early withdrawal; it is wise to acquire a QDRO (qualified domestic relations order) to avoid this. A QDRO is mandatory in cases in which the person receiving the funds is not a participant in the account.
IRAs – You will not need a QDRO to divide assets in an IRA or Roth IRA, but the same division rules apply regarding marital and non-marital property. In order for the other party to receive the IRA money, they will need to have or open an IRA that belongs to them.
Pensions – A spouse can receive payments from a pension earned by the other spouse (or they may choose to receive a lump sum when payments start). However, as with the other retirement accounts, the receiving party is only eligible for the amount that was earned during the marriage.
Many parties will choose to trade additional marital property of a different type for the value of the pension plan because many pensions are “defined benefit pension plans.” This means that there is no account currently holding the assets; rather, the pension is a promise to pay those assets in the future.
In court, this amount can be argued alongside the cost of living and inflation increases, which may boost the total compensation for the other party beyond a simple split of the value of the asset. Thus, it is sometimes wise to proactively offer other currently available assets for division to avoid the additional cost added to the owed pension sum.
Seek Legal Assistance to Preserve Retirement Assets During Divorce
Divorce can be complicated, and the emotional and financial stress of the situation only serves to make the important decisions about asset division more burdensome, making it wise to work with a legal team.
The professionals at SIEGELLAW help spouses with dividing retirement accounts in divorce to help them reach the most beneficial outcome available in their specific case. Contact SIEGELLAW to schedule a consultation and preserve the retirement assets you have worked so hard to build.