background
background
    Q. What types of retirement accounts are at issue in divorce?

    A. Any pension, retirement, profit sharing, or deferred compensation plan or
    account is at issue. Retirement assets include IRA, 401(k), 403(b), TSP, profit
    sharing, money purchase, pension, stock option, annuity, and any other deferred
    compensation accounts or plans; military, FERS, CSRS, state, county, municipal,
    union, and private defined benefit plans and defined contribution plans; and
    survivor benefits.

    Q. In a Maryland divorce, what retirement assets are marital property?

    A. Any pension, retirement, profit sharing, or deferred compensation plan or
    account acquired during marriage is marital property. So, for example, the right to
    receive retirement benefits under a private or public employee pension plan,
    whether or not vested, matured, or contributory, is property which, if acquired
    during marriage, constitutes marital property.

    Q. In a Maryland divorce, what retirement assets are nonmarital property?

    A. Any pension, retirement, profit sharing, or deferred compensation plan or
    account acquired before marriage, by inheritance or gift from a third party,
    excluded by valid agreement, or traceable to any of these sources is nonmarital
    property. So, for example, payments made toward a 401(k) prior to marriage are
    nonmarital property. So, too, the increase in 401(k)'s value during marriage, which
    is "directly traceable" to the portion acquired prior to marriage is nonmarital
    property.

    Q. What if only one spouse contributed to retirement benefits acquired during
    marriage?

    A. When the right to receive retirement benefits is acquired during marriage, it is
    marital property subject to equitable distribution.

    Q. Are employer matching contributions to an employee retirement asset
    treated differently than employee contributions?

    A. No.

    Q. In a Maryland divorce proceeding, is transfer or distribution of retirement
    assets required?

    A. No. The Maryland statute governing disposition of marital property gives the
    court discretion to transfer interests in retirement, pension and deferred
    compensation plans in divorce proceedings, but does not require the court to do
    so.

    The court has much discretion in determining the best way to allocate marital
    assets between parties. Whether to award retirement funds is but one of its
    options. If the court decides to award part of a retirement plan or similar account, it
    has considerable flexibility in determining how and when payments will be
    received. However, flexibility and discretion do not equate to a mandate that every
    divorce litigant with a retirement account must share it with an ex-spouse.
    The retirement account or pension plan is often, next to the family home, a
    divorcing party's largest asset, so it may become necessary for the court to
    consider dividing it. However, for example, where the retirement account
    represents only a fraction of the total marital property, some of the retirement
    asset was acquired before marriage, and other funds are available for a monetary
    award, the court may decide to let the retirement asset remain untouched.

    Q. What methods are used to determine the value of retirement benefits?

    A. For purposes of divorce in Maryland, a court has broad discretion in evaluating
    pensions and retirement benefits. In a Maryland divorce action, pension or
    retirement benefits can be valued (1) as equal to an employee's contributions to
    the pension plus accrued interest or market experience thereon, (2) as the
    "present value" of future benefits expected to be received by the employee after
    retirement, or (3) through determination of a percentage to be paid to the
    nonemployee spouse from any future retirement payments received by an
    employee spouse, payable "as, if, and when" received. The method used for
    valuing a spouse's pension or retirement benefits in dividing marital property
    upon divorce will depend upon the facts and circumstances of the particular case.

    Q. What is the "present value" method?

    A. Under this approach, benefits payable in the future have to be discounted for
    interest earned in the future, for mortality, and for vesting (if not fully vested at the
    time of divorce). The benefits then have to be calculated with respect to the
    employee-spouse's life expectancy as a retiree. This calculation involves
    considerable uncertainty, and the amount yielded changes as different
    assumptions are used with respect to mortality, job turnover and other factors. It
    has been recognized that this kind of calculation can be very difficult and that,
    where it becomes too speculative, the trial court should use a different method of
    valuation.

    Q. When are payments made to the nonemployee spouse under the
    "contributions plus" method or the "present value" method?

    A. Under either the "contributions plus" method or the "present value" method, the
    court has discretion to order payment to the nonemployee spouse in either a lump
    sum or in installments, depending primarily on other assets and relative financial
    positions of the parties.

    Q. Are there circumstances when the court does not determine the value of
    retirement assets?

    A. The court need not determine the value of a pension, retirement, profit sharing
    or deferred compensation plan, unless a party in a divorce proceeding has given
    notice that the party objects to a distribution of retirement benefits on an "if, as,
    and when" basis. If timely notice is not given, any objection to a distribution on an
    "if, as, and when" basis shall be deemed to be waived unless good cause is
    shown.

    Q. What is an "if, as, and when" award, and how does it work?

    A. The third method, which has been referred to as the "if, as, and when" method,
    recognizes that the value of a pension at the time of divorce cannot be ascertained
    with certainty until the employee spouse retires.

    This third method, which has been used widely, uses a formula for computing the
    nonemployee spouse's share of any future payments the employee spouse
    receives under the plan, payable to the nonemployee spouse as, if, and when
    paid to the employee spouse. Under this approach, of course, it is unnecessary to
    determine the value of the pension at all. The court need to do no more than just
    state the formula to be used to determine the percentage to which the
    nonemployee spouse will be entitled.

    Q. What formula is used in an "if, as and when" award?

    A. The formula used in an "if, as and when" award of pension benefits, referred to
    as the Bangs formula, calculates the value of the pension to which the
    nonemployee spouse is entitled as a percentage, usually 50 percent, multiplied
    by a fraction, the numerator of which is the number of months and years of
    employment during the marriage, and the denominator of which is the total
    number of months and years of employment at the time of retirement.

    Q. Why isn't the nonemployee spouse's share frozen at the time of divorce?

    A. Maryland's appellate courts have disapproved of attempts to freeze the
    nonemployee spouse's share of the employee spouse's pension to its then
    current fixed value at the time of divorce. They have observed that an employee
    spouse's increases in salary after divorce would be based in part on work
    performance during the marriage. Moreover, any future adjustments by
    management might well relate to the length of the employee spouse's total
    service, including the period of the
    marriage.

    Q. Does it matter whether alimony is awarded to either party?

    A. The court may transfer ownership of an interest in a pension, retirement, profit
    sharing or deferred compensation plan, from one party to either or both parties as
    an adjustment of the equities and rights of the parties concerning marital property,
    whether or not alimony is awarded.

    Q. Can an "as, if, and when" award be made even if one party wants a lump
    sum?

    A. Yes. Awarding a nonemployee spouse a portion of an employee spouse's
    pension benefits on an "as, if, and when" basis, rather than as a lump sum, is
    permissible, despite the employee spouse's preference for a lump sum award.
    Likewise, awarding a nonemployee spouse a portion of an employee spouse's
    pension benefits on an "as, if, and when" basis, rather than as a lump sum, is
    permissible, despite the nonemployee spouse's preference for a lump sum
    award.

    Q. How are survivor benefits treated?

    A. Survivor benefits attached to a pension are property separate and apart from the
    pension itself. Although survivor benefits are like a pension, they have been
    treated as marital or nonmarital property in their own right, depending on when
    and how the survivor benefits were acquired.

    A spouse seeking to recover an interest in the survivor benefit attached to the
    other spouse's pension must request the survivor benefit in addition to any
    request for the pension benefit itself.

    Q. Can a divorced party reduce a former spouse's share of retirement benefits
    by electing survivor benefits for someone else?

    A. A divorced party with a retirement cannot reduce a former spouse's share of
    pension benefits by electing survivor benefits for someone other than the ex-
    spouse. Although an employee spouse is free to elect survivor benefits for
    someone other than the nonemployee former spouse, the nonemployee
    spouse's pension benefits should not be less than they would have been if such
    an election had not been made.

    Q. If a transfer or distribution of retirement assets takes place in connection
    with a divorce proceeding, are income taxes due?

    A. Done properly, transfers between spouses incident to a divorce or separation
    instrument are not taxable events for either the transferor or the transferee.
    Consult a tax advisor with experience in transfers incident to divorce for guidance
    on how to transfer retirement assets properly.

    Of course, previously tax-deferred income will be taxable to the transferee spouse
    upon withdrawal from a retirement account.  However, under certain
    circumstances, the transferee spouse may avoid withdrawal penalties. Consult a
    tax advisor for guidance on how to do so.

    Q. What is a Qualified Domestic Relations Order or QDRO?

    A. A Qualified Domestic Relations Order, or QDRO (pronounced "quadro"), is one
    type of order that is issued by a court to transfer retirement assets. Although the
    term has a technical meaning, referring to employer-sponsored plans subject to
    ERISA, it has come to be used to refer to just about any order to transfer
    retirement assets. A QDRO must be approved by the administrator of the
    retirement plan as well as the court before it is carried out.

    Q. When is a QDRO needed to transfer or distribute retirement benefits?

    A. Pension plan benefits payable to an employee spouse under an ERISA plan
    can be redirected to an alternate payee non employee spouse only through the
    mechanism of a Qualified Domestic Relations Order or QDRO. Absent such a
    qualified order, not only will the pension plan administrator refuse to implement
    the court's decision, but there is at least a reasonable argument that a
    nonqualified order may be invalid even as between the parties.

    Q. What will prevent a retirement order from being "qualified"?

    A. An order will not be "qualified" if it grants any type or form of benefit, or any
    option, not otherwise provided under the plan, or results in a plan having to pay
    increased benefits.

    Q. In a QDRO, what do the terms "participant" and "alternate payee" mean?

    A. These are terms used in QDROs and other retirement orders. "Participant"
    refers to the spouse who is an employee or former employee of the plan sponsor,
    and "alternate payee" refers to a nonemployee spouse.

    Under ERISA, an alternate payee is "any spouse, former spouse, child or other
    dependent of a participant who is recognized by a domestic relations order as
    having a right to receive all, or a portion of, the benefits payable under the plan
    with respect to such participant." An alternate payee, under a QDRO, is treated as
    a plan beneficiary.

    Q. What happens when one spouse puts nonmarital funds into an IRA of the
    other spouse?

    A. One spouse's creation of an individual retirement account or IRA solely in the
    other spouse's name but primarily with the contributor spouse's nonmarital funds
    may indicate the contributor spouse's intent to make a gift to the recipient spouse,
    and to relinquish equitable interest in the funds. The contributor spouse's conduct
    may support classification of the IRA as the recipient spouse's nonmarital
    property upon divorce.

    Q. After divorce, can one spouse collect Social Security benefits based on the
    other's record?

    A. If a divorce occurs after at least 10 years of marriage, you can collect retirement
    benefits based on your former spouse's Social Security earnings record if you are
    at least age 62 and if your former spouse is entitled to or receiving benefits. If you
    remarry, you generally cannot collect benefits on your former spouse's earnings
    record unless your later marriage ends (whether by death, divorce or annulment).
    Get more information at www.socialsecurity.gov.

    Q. How does divorce and remarriage affect Social Security survivors benefits?

    A. If your divorced spouse dies, you can receive benefits as a widow/widower if the
    marriage lasted 10 years or more. Benefits paid to a surviving divorced spouse
    who is 60 or older will not
    affect the benefit rates for other survivors receiving benefits.

    In general, you cannot receive survivors benefits if you remarry before the age of
    60 unless the later marriage ends, whether by death, divorce, or annulment.

    If you remarry after age 60 (50 if disabled), you can still collect benefits on your
    former spouse's record. When you reach age 62 or older, you may get retirement
    benefit on the record of your new spouse if they are higher. Your remarriage would
    have no effect on the benefits being paid to your children.
FREQUENTLY ASKED QUESTIONS ABOUT
Retirement Assets

NOTICE: None of these questions and answers constitute legal advice.
To obtain legal advice, consult with an attorney. This is especially
important in divorce and family law matters, in which outcomes are often
peculiar to the particular facts and circumstances of the case.
200-A Monroe Street, Suite 301    |      Rockville, Maryland 20850     |     Phone:  301.279.8840     |     Fax:   240.536.9127     |      Map and Directions
MEISELMAN &
HELFANT, LLC
Call Us Today
301-279-8840
TO LEARN MORE, READ OUR
Frequently Asked
Questons
Contact Us Today
Your name:
Your email address:
Your phone number:
Comments:
Resources and Tools
Have Questions? We Have Answers.
Before your next move, call us.
© 2002-2016 All rights reserved.
Meiselman & Helfant, LLC.
AV Preeminent Lawyers by Lexis Nexis | Martindale-Hubbell
Top Attorneys In The Washington, D.C. Metro Area
Top Attorneys in Maryland
Serving Bethesda, Chevy Chase,
Gaithersburg, Germantown,
Kensington, Olney, Potomac,
Rockville, Silver Spring, Wheaton,
Montgomery County, Prince George's
County and Howard County.