Part 1: Is It Marital?

After a home, Retirement Assets are typically the largest valued asset – or assets – couples own and need to address in a divorce.

In this Part 1 We address the question of what you are entitled to.  In Part 2, we’ll address the process of valuing and dividing the retirement assets.

Is My Retirement Account a Marital Asset Even If I am the Account Holder?

Retirement Assets can be marital even though they are always titled in the name of one individual. 

Under Maryland Law, Retirement Accounts (such as an IRA, 401(k), 403(b), pension plan, deferred compensation plan, etc.) can be treated as either non-marital, marital, or can be treated as a hybrid asset – partially marital, partially non-marital. (More on this in Part 2!)

Primarily, Maryland law looks to when an asset is “acquired.” If a retirement account is “acquired” during the marriage, it is marital; if it was acquired, or earned, prior to the marriage, it is non-marital.  Retirement accounts “acquire” value in one of three ways: (1) direct contributions from the individual, (2) employer matching, and (3) growth on the account.  

The “directly traceable” exception modifies the marital property rule. If an asset aquired during marriage is “directly traceable” to a non-marital asset, that is also non-marital. So, passive growth on a non-marital retirement account (or portion of an account) may also be non-marital. Obviously this exception can complicate cases where a party has passive earnings related to a non-marital portion of their retirement asset.

 

Is My Spouse Entitled to 50% of My Retirement? Can We Waive Each Other’s Retirement?

Under Maryland Law, a court may divide or transfer retirement assets between the parties “as an adjustment of the equities and rights” of each party.  The applicable statute outlines various factors that a court must consider, but practically speaking the amount that each party is entitled to is up for negotiation and debate – there is no formulaic amount set by law. 

Many divorcing couples (and judges) might start – or end – at a 50/50 equal division of marital assets including retirement.  However, fair does not necessarily mean equal.  In many cases, one party may end up with more than 50% of the total marital value of retirement assets.  In the most common example, each party may agree to keep his or her own retirement accounts, even if the account values are not equal.  But, in other cases the disposition of assets may be un-equal for another compelling reason, e.g., as a compromise on the amount of alimony being paid.

At Maryland Divorce Mediators, we work with divorcing couple to fully evaluate and understand splitting retirement assets. Our professional guidance allows for clients to be sure that they are dividing assets fairly and equitably.

Continue Reading Part 2 To learn about how do value and divide retirement assets post-divorce.