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Understanding how retirement savings are split in divorce

For many Maryland couples, retirement savings form a significant portion of their marital wealth. These assets can play a key role in the overall property division strategy, and it is important for spouses to understand the ins and outs of dividing retirement accounts during divorce. This is true for spouses of any age, but the matter is of far more importance to those who are at or nearing retirement age.

Once a marriage has taken place, any retirement savings that are obtained from that point forward become marital property. This is true regardless of where the funds came from; savings that an individual set aside are treated the same as those that an employer contributes. If an individual came into the marriage with considerable retirement savings already in place, it is possible to determine the increase in value that has occurred since the time of marriage, and to include that growth in the savings to be retained by only one party.

In order to avoid losses due to taxation, most spouses who receive a portion of retirement savings will roll those funds over into their own retirement account. The means by which this is accomplished is through a qualified domestic relations order (QRDO.) A QRDO is required for 401(k)s, pension plans, 403(b)s and certain other employer plans. Once the QRDO has been properly drafted and checked for accuracy, it is signed by the court and sent to the appropriate party so that the division of assets can be completed.

Each couple will have a different set of needs when it comes to dividing retirement savings. It is important to work with a qualified divorce attorney to ensure that these assets are handled in the proper manner, and that the property division choices made are in line with the client's individual financial goals. With these things in mind, Maryland spouses should begin the property division process with an eye toward their own interests, and with an idea of how they would like their financial future to be shaped.

Source: wcpo.com, "How retirement plans get divided in a divorce", Thomas Trutschel, Jan. 20, 2016

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