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How division of property in divorce affects retirement accounts

On Behalf of | Aug 23, 2021 | Property Division |

As there are many different types of retirement accounts, it should come as no surprise that there are equally as many rules for the division of those assets in divorce as well. For those with more assets in Maryland, equitable distribution can require complex calculations.

What is subject to distribution?

That question alone can have a complicated answer. Consulting with a divorce attorney, particularly one with expertise in property division, is always advisable. Your unique financial situation may mean that certain accounts are not eligible for division while others may be. A mistake in this assessment could cost a substantial amount of money.

Pensions, IRAs, 401(k) accounts, annuities, securities and even insurance contracts are all potentially subject to property settlement agreements. Some of these accounts require difficult actuarial calculations to value accurately. Pensions, in particular, require an assessment of their current value and not the future value if the contributor has not yet started drawing funds from the pension. Failing to correctly calculate that value will cause an incorrect split.

How are these agreements reached?

Mediation is the most advisable route to equitably split property as the parties can agree to forego distribution of certain accounts in lieu of other assets that they may jointly possess. That alone could avoid the difficulties of a pension assessment.

Furthermore, you must take care to use the correct method to distribute the funds once both sides eventually reach an agreement. A qualified domestic relations order is necessary for a spouse to receive a payout from the retirement account or share in the payments. After providing this document to the plan administrator, it is possible, in many circumstances, to distribute the funds without paying penalties or taxes as long as the funds transfer follows certain protocols.

As stated earlier, the complex nature of property division during divorce for couples with substantial assets or deferred compensation accounts lends itself to inadvertent errors. Consultation with experienced and knowledgeable divorce attorneys is a necessity in order to protect the financial futures of both parties in an already trying circumstance.

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