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Protecting Your Retirement During a Divorce

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Going through a divorce is an emotionally turbulent time, so couples might not think about their long-term needs after the separation. One of the important considerations is dividing assets, especially those associated with retirement. When done correctly, both parties can still ensure that their retirement funds are enough to secure their future needs. 

In Maryland, most retirement assets are considered marital property. This fact makes things a bit more complicated, especially for those who want to protect their retirement savings during a divorce. So what happens? At Albers & Associates, we’re sharing what you need to know about protecting retirement assets for divorces in Baltimore and other locations in Maryland. Keep reading to learn more.

What Is Marital Property?

The first thing you’ll want to understand is the concept of marital property. According to Maryland Family Law, marital property is all property obtained during the duration of a marriage. This rule applies regardless of who paid for this property, and it includes real estate, cars, personal property, and yes, even retirement assets. Deposits from marital funds into defined contribution plans make the funds in those accounts marital property. This includes:

  • IRA
  • Roth IRA
  • 401K
  • 403B

The only exception from this is retirement accounts that already existed before the marriage. The funds would be classified as non-marital property, and couples wouldn’t need to divide them between themselves. However, the party claiming some non-marital assets for an account with marital funds will be responsible for proving that a portion of it is non-marital property. 

But in retirement saving accounts that don’t have non-marital funds for contention, Maryland follows an equitable distribution statute. A court doesn’t have to divide the funds equally. Instead, they can allocate assets in a way that it finds fair for all parties.

How Are Retirement Assets Divided During a Maryland Divorce?

If you have non-marital funds in your retirement accounts, then it’s much easier to get that back. For the rest, you’ll need something called a Qualified Domestic Relations Order (QDRO) issued by the court. Keep in mind that state courts can’t easily mandate the distribution of funds from retirement accounts; it’s the federal government that controls this. 

With a QDRO, a plan administrator will have the power to distribute funds from the accounts to a holder’s ex-spouse. In addition, a QDRO allows an ex-spouse to take the funds and deposit them to another retirement account without incurring penalties associated with early withdrawal. 

However, there needs to be verbiage in IRA and SEP accounts indicating that a party’s retirement account follows Section 408(d)(6) of the Internal Revenue Code. Otherwise, they’ll need to pay income tax for the amount they withdraw.

Negotiating Retirement Savings During a Divorce

QRDOs and other related processes are time-consuming and costly. Plan administrators will also charge fees, making the already emotional time even more taxing. For those who want to avoid the bureaucratic nightmare, both parties can agree to just walk away with what they have, especially if they’re of relatively the same age or have similar retirement balances. 

Things get more complicated if there’s a wide gap between each spouse. If you’re set on keeping your retirement account and protecting it from equitable distribution, you can consider trading other high-value assets with your spouse. That way, they’ll leave your retirement funds to you. 

You can even transfer funds from other types of accounts to trade, but be mindful of taxes. Other types of assets don’t enjoy the same benefits as the retirement accounts we mentioned above.

Contact a Trusted Divorce Attorney

There isn’t a set way to protect your retirement assets during a divorce. What you can do instead is have an attorney who understands the processes involved in dividing assets. That way, you’ll have a higher chance of getting back all the money you’ve worked for. Albers & Associates is well-versed in family law and divorce proceedings in Maryland. We’ll work with you to help protect your retirement assets and navigate the process of property division. To schedule a consultation, please contact us today!

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