When Maryland law is paired with the complex structure of some retirement and pension plans, it makes dividing and distributing assets during divorce somewhat complicated. With the possible exception of your home, your retirement savings are one of your most valuable assets. Anything paid into the plan during your marriage is subject to marital property laws and considered in the property division process.
If you value your retirement, you will want a lawyer with experience fighting for clients’ pensions and navigating the state’s retirement and pension regulations to represent you during this time. You also need an attorney who has the resources to connect you with financial experts who can help navigate the complicated laws surrounding distributing money from pension plans and retirement accounts.
How does Maryland law affect retirement and pension distribution?
Maryland follows a system of equitable distribution in divorce cases. Equitable distribution, unlike community property in which you divide all assets 50/50, means that you must simply divide your possessions in a way that the law deems fair.
The court must always consider retirement plans and pension plans for division but the law does not require the court to divide them. In some cases, the judge will decide to leave the retirement plan or pension untouched, such as in cases where there are many other divisible assets.
For more information about equitable distribution, click here.
These guidelines apply to all marital property, including any contributions made to pension plans and retirement accounts over the course of the marriage. Because of the way the division of property law works in Maryland, the court manages these particular assets through a series of steps, including:
- Determining if there is evidence to support a pension or retirement account as separate property
- If not, putting a value on the investment
- Distributing or transferring the value of the pension
How does the court value pensions or retirement benefits?
The court may use one of three different methods to decide on the value of benefits: the “contributions plus,” the “present value,” or the “if, as, and when” methods.
The “contributions plus” method will be the total of the employee-spouse’s contributions to the plan, plus any interest accrued.
Under the “present value” method, the court considers the present value of the future benefits the employee will receive once he or she retires. This requires making assumptions about length of employment as well as length of life.
The court may order the distribution to the non-employee spouse be made in a lump sum or in periodic payments. However, using this method, the non-employee spouse receives the benefit after the employee spouse retires and begins receiving the pension payments.
The “if, as, and when” method does not account for the value of the pension benefits at the moment, but rather determines what percentage of the pension the non-employee spouse will receive and then multiplies that percentage by a fraction (number of years of employment during marriage divided by total length of employment) to determine how much of the pension the non-employee spouse will receive.
Are transfers and distributions of retirement assets tax-free?
There are ways to make the transfer or distribution so that neither spouse must pay taxes on it. This requires use of proper procedures and instruments, so be sure to work with an attorney at Hecht & Associates to properly execute the transfer or distribution.
For instance, a judge may create a Qualified Domestic Relations Order (QDRO) to authorize the transfer of certain retirement assets (like those in a 401(k)) to an “alternate payee”. An alternate payee can be a spouse, ex-spouse, child, or dependent who is entitled to a portion or all of another party’s (usually the other spouse) pension plan.
Ensuring the appropriate transfer or distribution of retirement assets can be complicated and may require meeting strict criteria, especially to avoid certain tax implications. Talking about the circumstances of your case with an expert is paramount. We guide our clients through this process and work with experts when necessary to protect our clients’ rights and ensure fair and financially sound distribution of the asset.
What about other investments earmarked for retirement?
Other investments couples commonly use for retirement savings cause significant headaches during some divorce cases. Stocks, for example, do not fit into the categories of property that the court can directly order transferred between divorcing spouses. This means that even if your partner spent $100,000 of joint income on stocks titled in his name during your marriage, the court cannot order he transfer to you a portion of these stocks.
While the court’s authority does not allow it to force a title transfer in this case, that does not mean you lose out on your portion of the value of this asset. Instead, the court typically grants other property to provide you with the value of your portion of these stocks, or orders your partner pay you a monetary award to cover this value.
Hecht & Associates Can Help Ensure Proper Retirement and Pension Distribution
Hecht & Associates can utilize financial and other types of specialists who oversee the valuation of pensions, retirement plans, and IRAs, helping our clients get their fair share in a manner that works best for them. If you have questions about how your divorce affects your retirement savings or your legal options for distribution of these funds, call us today at 301-587-2099.