Ending a marriage involves more than emotional decisions. For many couples, retirement accounts represent their most significant financial asset. When divorce proceedings begin, knowing how Maryland law treats these accounts is essential to protecting your financial future.
Under Maryland law, retirement assets accrued throughout a marriage are eligible for equitable distribution.
This article will explain how Maryland courts classify and divide retirement assets, the legal processes involved, and why working with an experienced divorce attorney in Howard County, MD can help protect your interests.
Distinguishing Marital vs. Non-Marital Retirement Property
Maryland law distinguishes between marital and non-marital property when dividing assets during divorce. Retirement assets earned during the marriage generally qualify as marital property subject to equitable distribution.
Marital Property: Any contributions to retirement accounts during the marriage are considered marital property, including employer matches and investment growth on those contributions.
Non-Marital Property: Assets obtained prior to marriage or following separation are generally considered separate property. Inheritances or gifts placed into retirement accounts are also usually excluded.
For example, if you entered marriage with $25,000 in your 401(k) and the account grew to $125,000 by divorce, only the $100,000 accumulated during the marriage would be subject to division.
How Retirement Assets are Divided in Maryland
Maryland courts use an equitable distribution approach, meaning that while they strive to divide marital property fairly, the division may not be equal. Under Maryland Code, Family Law § 8-205, courts may transfer ownership of interests in retirement plans from one party to either or both parties as an adjustment of marital property rights.
When determining how to divide retirement assets, Maryland courts consider multiple factors: each party’s monetary and non-monetary contributions to the family, the value of all property interests, each spouse’s economic circumstances, the duration of the marriage, and each party’s age and condition.
Retirement Account Types and How They are Divided
Different retirement accounts follow different rules for division during divorce.
401(k)s and Pensions
Employer-sponsored plans, such as 401(k)s and pensions, require a Qualified Domestic Relations Order (QDRO) to distribute benefits. A Qualified Domestic Relations Order (QDRO) is a legal document that instructs a retirement plan to distribute child support, alimony, or marital property rights to a spouse, ex-spouse, child, or other dependent of a plan participant..
The QDRO allows the non-employee spouse to receive their share without triggering early withdrawal penalties or immediate tax consequences. Through a QDRO, the non-employee spouse can receive their share free from early withdrawal penalties and immediate tax consequences.
Individual Retirement Accounts (IRAs)
Individual Retirement Accounts (IRAs) do not require a Qualified Domestic Relations Order (QDRO) for their division. However, the divorce decree must include specific language to exempt the transfer from tax. The account holder can transfer funds directly to their ex-spouse’s IRA without penalties if done correctly.
The QDRO Process
For most employer-sponsored retirement plans, a QDRO is essential to complete the division of assets. This specialized court order must contain the participant’s and each alternate payee’s name and mailing address and the amount or percentage of benefits to be paid.
Once the court has issued the QDRO, it must be sent to the retirement plan administrator for their approval. Preparing early is useful, as this process can take weeks or months.
Common Mistakes to Avoid
Dividing retirement assets in divorce is complicated; mistakes can cost you thousands:
- Failing to Identify All Retirement Accounts: Some spouses forget old 401(k)s from previous employers or small IRA accounts.
- Ignoring Tax Implications: A $50,000 pre-tax 401(k) is not equivalent to a $50,000 Roth IRA because of different tax treatments.
- Not Getting Accurate Valuations: Pension valuations require expertise to secure a fair division.
- Delaying the QDRO: Finalizing the divorce without completing the QDRO creates risks if circumstances change.
Why Choosing a Skilled Divorce Lawyer in Howard County Matters
Retirement assets often represent decades of planning and savings. To divide them equitably, you need both legal knowledge and financial insight. An experienced divorce attorney in Howard County, MD, can identify all retirement accounts, work with a financial professional to accurately value benefits, draft QDROs that comply with plan requirements, and establish that all court orders are correctly executed.
Talk with Our Top High-Asset Divorce Attorney in Howard County, MD
Dividing retirement assets during a divorce in Howard County, MD, requires careful attention to detail and a thorough knowledge of state and federal law. Your financial future depends on today’s choices.
At Milstein Siegel, our experienced family law attorneys have helped Maryland clients protect their retirement assets during divorce for over 30 years. We understand the complexities involved in valuing and dividing pensions, 401(k)s, IRAs, and other retirement accounts.
Don’t leave your financial future to chance. Contact Milstein Siegel at (443) 230-4674 or contact us online to arrange a consultation and learn how we can help you secure a fair division of your retirement assets during your divorce.