Baltimore, Maryland Retirement Asset Division Lawyers

Divorce Attorneys Assisting With Retirement Accounts and Pensions in Baltimore

Retirement assets may be some of the most significant financial resources you will accumulate over a lifetime of work. A 401(k) that has grown steadily over decades, an IRA funded with years of careful saving, or a pension that will provide you with a defined monthly income after retirement can be a crucial part of your plans for your future. When getting a divorce, you will need to make sure your retirement assets will be handled correctly so that you will have the financial resources you need later in life.

At Silverman Thompson, our attorneys represent clients in high net worth divorce cases in Baltimore, helping them address concerns about the division of retirement assets and other marital property. We can provide guidance on how to ensure that these assets are divided correctly while avoiding potential issues that could affect your future financial security.

The Importance of Addressing Retirement Assets Correctly

When going through a divorce, the immediate financial pressures you are facing may lead you to focus on immediate, tangible assets, such as real estate property, savings accounts, and vehicles. Retirement benefits may seem like secondary concerns that will not need to be addressed until years in the future. This can be a serious mistake.

The Long-Term Financial Stakes

A person who gives up retirement assets during their divorce in exchange for other property may find, decades later, that the trade was unfavorable. A 401(k) with a balance of $200,000 in a person's forties that is allowed to grow for another 20 years can be worth much more by the time retirement arrives. A pension that may not begin paying until years or decades in the future may ultimately be worth far more than any other assets a couple owns at the time of their divorce.

Avoiding Tax Consequences

Another important reason to address retirement assets correctly during a divorce is the possibility of losses due to taxes. Many retirement accounts, such as 401(k)s and traditional IRAs, are funded with pre-tax dollars, and taxes will apply when funds are withdrawn. An early withdrawal before the account holder reaches retirement age will result in penalties. If retirement funds are handled incorrectly during a divorce, income taxes and early withdrawal penalties may apply, resulting in a substantial loss of value.

Dividing 401(k) Accounts Using a Qualified Domestic Relations Order

A 401(k) may be provided as a benefit by a person's employer, and its balance may be based on contributions that were made during a couple's marriage, making it a marital asset that will need to be considered during the division of property. When a 401(k) is divided in a divorce, a Qualified Domestic Relations Order (QDRO) will usually be used to withdraw and transfer the funds.

A QDRO is a court order stating that an alternate payee has the right to receive a portion of the retirement benefits. When a QDRO is provided to the administrator of a retirement plan, funds can be withdrawn without triggering an early withdrawal penalty. While income taxes will apply to these distributions, this can be avoided by rolling the funds into another IRA or employer-sponsored retirement plan, deferring taxes until the alternate payee's retirement.

Dividing IRAs

Individual Retirement Accounts (IRAs) are handled similarly to 401(k) plans, and withdrawals before reaching retirement age will result in taxes and penalties. While QDROs are not used for IRAs, a similar method known as a "transfer incident to divorce" will allow funds to be withdrawn and transferred without taxes or penalties. A divorce decree should clearly specify the amount or percentage of funds in an IRA that will be transferred. Our attorneys can help clients draft these provisions carefully to ensure that the tax-free transfers can be made.

Addressing Pension Benefits

A pension or defined benefit plan will provide an employee with a specific amount of monthly income after their retirement. The amount that will be paid may be calculated based on a person's years of service and the average salary they earned during their career. Unlike a 401(k) or IRA, which has an account balance that can be divided during a divorce, a pension's value is based on future payments that may not begin for many years. Because of this, pensions can be more valuable than they may seem at the time of a divorce, and dividing them may be a more complex matter.

Determining the Marital Portion of a Pension

Before pension benefits can be divided, the marital portion of a pension must be calculated. In general, the marital portion will be the benefits earned during the years that a couple was married. For example, if a spouse earned pension benefits during a career that lasted for 40 years, and they were married during 10 of those years, one-fourth of their pension benefits would be considered marital assets.

Dividing a Pension With a QDRO

Many pensions covered can be divided using a QDRO. The QDRO for a defined benefit plan will specify the percentage of the benefit that will be paid to a person's ex-spouse. The ex-spouse will begin receiving their share of the pension when payments begin.

Our attorneys have experience helping clients address issues related to pensions. We can make sure the right rules are followed when creating QDROs or using other methods to divide pension benefits. We can also help clients make sure the marital portion of pension benefits and the percentage of benefits paid to an ex-spouse will be calculated correctly.

The Offset Approach as an Alternative to Pension Division

Not every divorcing couple chooses to divide pension benefits. Another approach may allow a spouse to receive the full pension benefit while the other receives other marital assets of an equivalent value. This may ensure that a spouse will receive the retirement benefits they have earned while the other spouse can receive money or property that will help them meet their present and future needs. Our lawyers can advise clients on the best approach to take when dividing pensions, retirement benefits, and other marital assets.

Contact Our Baltimore, MD Retirement Asset Division Attorneys

The decisions you make about retirement accounts and benefits during your divorce can have consequences that may last for decades into the future. At Silverman Thompson, we can help you understand the full value of your retirement assets, the steps that will need to be taken to divide them, and the long-term implications of different options. Contact our Baltimore retirement account division lawyers at 410-385-2225 to speak with a member of our team in a confidential consultation.