Planning for retirement is an ongoing endeavor for much of a working person’s life, and for those who are married, that plan factors in the contributions, spending habits, and goals of two people rather than one.
Planning divorce and retirement benefits is typically not a part of that effort but it can create a profound impact on the financial picture that one or both parties envisioned for their life after their working years.
A divorcing spouse can claim the other partner’s retirement benefits when they divorce, but doing so can be complex, and the determination of amounts and types of assets is nuanced.
Here is what divorcing couples need to know about how a spouse can claim their retirement benefits in a Maryland divorce, including how the division is determined, how to protect their assets, and which types of accounts may be included.
Divorce And Retirement Benefits: An Overview
Those going through a divorce are faced with the division of their assets, but many tend to forget that retirement assets are included in that picture. In Maryland, property (both physical and financial) is divided equitably.
This is different from being divided equally, in which each party would receive 50%. Equitable division grants more to the person who needs more, a calculation that can be nuanced and intricate.
When splitting retirement benefits equitably, most types of accounts and holdings are eligible for division. This includes 401(k)s and similar financial accounts, from which an early withdrawal to reallocate money to another party could result in substantial fees.
The court has the ability to navigate around these issues, but only with proper preparation and cooperation from the involved parties.
What Is Considered Equitable?
When determining what is equitable during asset division, the court will examine multiple factors:
Income – If one spouse makes significantly more than the other, the lesser-earning spouse will typically receive more assets. The court acknowledges that a partner who is working less or stays at home with children is contributing to the marriage in non-financial ways as well—housekeeping, management, childcare, and a variety of other important tasks that allow the primary earner to perform their job.- Disability – If two parties are divorcing and one party has relied on the other for care and support due to a condition such as a physical disability, the court will likely grant more assets to the disabled party. This provides the opportunity to support themselves on their own while maintaining a safe and sufficient standard of living.
- Debt – Debt is included in the calculation of what is divided equitably. If both parties assumed a debt together during the marriage such as credit cards, mortgage, or personal loans, both will likely be responsible, at least in part, for paying it back. However, if debt repayment would cause undue financial hardship to one divorcing partner, or if only one partner accumulated debt in the marriage in a manner that was considered irresponsible and in defiance of their spouse’s wishes, the court may place the bulk of the repayment responsibility on only one party. For debts attached to property, this will also require the division of those assets.
Which Retirement Assets Are Not Eligible for Division?
In general, any asset may be available for reallocation and division during a divorce. However, certain circumstances can change the eligible value to be divided. In Maryland, non-marital property, defined as assets acquired before the marriage, will remain with the person who acquired them.
If a 401(k) valued at $500,000 only received $50,000 of contributions during the marriage, the other $450,000 is not typically eligible for division, and the other spouse cannot claim part or all of those retirement benefits.
What About Social Security and Pensions?
As with retirement accounts, social security and pensions can also be divided during a divorce. However, some caveats apply. Both spouses must be eligible to receive social security.
One party may elect to offer other assets or pay a lump sum rather than divide their social security and pension assets; this possibility can be discussed with a legal professional.
When dividing a pension, the other spouse typically must make a request specifically to receive part of the pension, otherwise, it will not be included among the other retirement accounts.
Get Help from a Divorce Attorney When Dividing Retirement Benefits & Assets
Navigating a divorce is an emotionally taxing time; however, it does not also need to bring financial difficulty. An experienced attorney can help you preserve as much of your retirement benefits as possible during a divorce.
The lawyers at Milstein Siegel take the time to learn the personal details of each situation in order to provide tailored advice that leads to as much success as possible during the division of assets. Contact our firm to schedule a consultation.