Almost everyone going through divorce experiences financial strain and will need time to rebuild their finances. Your divorce will impact the retirement funds available to you.
Here are four essential things to know about divorce and retirement planning.
1. In Maryland, all assets acquired and earned during your marriage are considered marital property and will be divided at divorce.
Martial assets will include your 401(K), pensions, and any other retirement or investment accounts you may be saving for retirement. Many people have a 401(K) account that was started before the marriage and wrongly assume that the retirement account will be deemed entirely non-marital. However, if you contributed to it during your marriage, the amount you contributed during your marriage plus investment performance on those contributions, is marital property and subject to division.
2. You can use your share of retirement assets to offset the payment you may owe to your ex-spouse in dividing your marital assets.
For example, if you want to buy out your spouse’s interest in the house but are short on cash flow, you can talk with your attorney about transferring your share of retirement assets to your spouse to buy out their interest in the marital home. Alternatively, if you are close to retirement and won’t be able to work long enough to replenish your retirement account after sharing it, talk with your attorney about other assets that you can transfer to your ex-spouse that will allow you to retain more of your retirement funds. You must speak candidly with your attorney about your financial goals and what that will look like after divorce considering your age, work history, and when you plan to retire.
3. If either of you has a pension, make sure that you address “survivor benefits” and “death benefits.”
Death Benefits are paid to your named beneficiary if you die before retirement, and Survivor Benefits are paid to your named beneficiary if you die after retirement. Figuring out death benefits and survivor benefits of a pension can be a complex process, so work with an experienced attorney who can guide you on how best to handle them.
4. Before finalizing your divorce, call and talk with all plan providers to confirm what documents you must submit to them to divide the funds.
Some providers require a court order called a QDRO (Qualified Domestic Relations Order). They may even require specific wording before the retirement plan will transfer the funds. Also, the timing of receiving your spouse’s retirement assets is crucial to avoid triggering taxes.
Ensuring that you have the necessary documents drafted and ready to be signed by a judge at the time of your divorce or soon after protects you from the possibility of your ex-spouse withdrawing funds and you being adversely impacted if your spouse dies or remarries.
Everyone needs to plan for retirement, and it is essential when divorcing.
About Andalman & Flynn, P.C.: Founded in 1998 in downtown Silver Spring, Maryland, Andalman & Flynn has forged a distinguished reputation for legal excellence. The Firm practices family law, estate planning, and probate throughout Maryland and the District of Columbia, and represents individuals seeking disability benefits throughout the country. The Firm focuses on cases that impact the rights of everyone and is there for clients when responsive legal help is most critical. The Firm has provided legal analysis on national and local television and radio, and its attorneys often testify before legislative bodies and are routinely invited to contribute to prominent legal publications. For more information about Andalman & Flynn, please visit the website at andalmanflynn.com or call 301.563.6685.