For those preparing to get divorced in Maryland, there are a lot of things to think about. Younger divorcees are usually more worried about custody of small children, income division, and how they will pay the bills once separated. But for more mature couples (those in their 40’s or older), the concerns often shift to retirement accounts. After all, people spend their entire lives saving and working hard to build a nest egg so they can enjoy their golden years. The idea of losing all that work in a divorce can be untenable. If you need help with a divorce, contact us for help today.
In general, Maryland courts treat retirement accounts the same as any other asset of the marriage. But this depends to some extent on whether the assets were acquired during the marriage. Consider the following two examples:
Example A (Second Marriage)
For instance, say a couple married late in life after the man acquired millions in a 401(k). They married at 60 and divorced at 62. It’s unlikely the courts would consider the bulk of the man’s retirement assets to be marital property. Of course, there are exceptions. This is a prime example of why it can be wise to set up a prenuptial agreement, especially in second or late life marriages.
Example B (Young Marriage)
On the other hand, take a younger couple who married in their 20s, stayed married for 20 years, then filed for divorce after the man acquired a retirement account worth over a million dollars. The court generally considers the spouse to be an equal participant in creating that marital estate, even if she was not working outside the home.
Courts consider the stay-at-home spouse (or lesser earning spouse) to have provided other services of value, such as maintaining the home, caring for children, and other things that are necessary to helping the higher earning spouse create such wealth. Therefore, it’s likely in this type of case that the court would divide the retirement account “equitably,” along with all other marital assets.
You should always consult a tax advisor or CPA if you have a large net-worth and are preparing for divorce. Nevertheless, there are some general rules. The IRS, though often quite harsh, is not entirely unreasonable. There are three general guides provided by the IRS that can help:
As a general rule, however, in order to comply with IRS rules, retirement plans that are funded with pre-tax money (traditional IRA’s and 401(k) plans) require the receiving spouse to file something called a Qualified Domestic Relations Order before they will pay benefits to that spouse. That spouse then must usually roll the benefits over into a qualifying new plan in order to avoid early withdrawal penalties or steep taxes.
If you are facing a complex divorce or have additional questions about what will happen to your retirement accounts after your divorce, then contact the Law Offices of Todd K. Mohink, P.A. today. Our Maryland attorneys are eager to assist you today.
7310 Ritchie Highway, Suite 910
Glen Burnie, MD 21061
30 Corporate Center
10440 Little Patuxent Parkway,
Columbia, MD 21044