Dividing Retirement Accounts and Pensions

For many couples the retirement account is worth more than the house, and it is the asset people most often wave away because only one spouse’s name is on the statement. That instinct is wrong, and acting on it is expensive.

The marital portion is marital property

The part of a retirement benefit earned during the marriage is generally marital property in Maryland, whoever the account is titled to. The part earned before the marriage, or after the parties separate depending on the circumstances, is generally not. Sorting one from the other is a tracing exercise, and for a long career it can require records going back decades.

Different accounts, different mechanics

• Defined contribution plans, such as a 401(k) or 403(b), have a visible balance. The marital share is usually calculated from contributions and growth during the marriage.
• Defined benefit pensions pay a stream of income at retirement rather than holding a balance. Valuing one generally requires an actuarial calculation, and the marital share is often expressed as a formula rather than a dollar figure.
• IRAs divide differently again, by transfer incident to divorce rather than by the order described below.
• Government and military plans follow their own rules, which are not the same as a private employer plan.

Agreeing to divide it is not dividing it

This is the point worth carrying away. A settlement agreement or judgment that says a spouse receives half the pension does not move a cent. Most employer plans require a separate court order directed to the plan administrator, commonly called a qualified domestic relations order, before they will pay anyone other than the employee.

That order has to be drafted, entered by the court, and accepted by the plan. Cases where this step was skipped surface years later, usually when the employee spouse retires or dies, and by then the options are limited and unpleasant.

Offsetting instead of splitting

Dividing the account is not the only route. Where the numbers work, one spouse keeps the retirement and the other takes more of another asset, often the equity in the house. That avoids the administrative burden entirely, but it requires valuing the retirement benefit properly first, and it means comparing assets that behave very differently: a pension is not the same as cash, and both carry different tax treatment.

Survivor benefits

Easy to overlook and hard to fix later. If the plan offers a survivor benefit, whether it is preserved for the former spouse is a decision that has to be made deliberately and recorded in the order, not left to default.

Related

• Property and debt division
• High-asset and business-owner divorce
• Discovery and financial disclosure
• Updating beneficiary designations afterward

Official resources

• Md. Code, Family Law section 8-205
• U.S. Department of Labor, qualified domestic relations orders

Talk with a Towson attorney

The Law Office of Thomas K. Mallon, LLC offers a free consultation. Call (410) 847-9075 or request a consultation online. The office is at 1107 Kenilworth Drive, Suite 305, Towson, MD 21204.

This page provides general information about Maryland law. It is not legal advice, and reading it does not create an attorney-client relationship. Maryland law changes, and how it applies depends on the facts of your situation.