Retirement Assets

NOTICE: None of these questions and answers constitute legal advice. To obtain legal advice, consult with an attorney. This is especially important in divorce and family law matters, in which outcomes are often peculiar to the particular facts and circumstances of the case.

Any pension, retirement, profit sharing, or deferred compensation plan or account is at issue. Retirement assets include IRA, 401(k), 403(b), TSP, profit sharing, money purchase, pension, stock option, annuity, and any other deferred compensation accounts or plans; military, FERS, CSRS, state, county, municipal, union, and private defined benefit plans and defined contribution plans; and survivor benefits.

Any pension, retirement, profit sharing, or deferred compensation plan or account acquired during marriage is marital property. So, for example, the right to receive retirement benefits under a private or public employee pension plan, whether or not vested, matured, or contributory, is property which, if acquired during marriage, constitutes marital property.

Any pension, retirement, profit sharing, or deferred compensation plan or account acquired before marriage, by inheritance or gift from a third party, excluded by valid agreement, or traceable to any of these sources is non-marital property. So, for example, payments made toward a 401(k) prior to marriage are non-marital property. So, too, the increase in 401(k)’s value during marriage, which is “directly traceable” to the portion acquired prior to marriage, is non-marital property.

When the right to receive retirement benefits is acquired during marriage, it is marital property subject to equitable distribution.


No. The Maryland statute governing disposition of marital property gives the court discretion to transfer interests in retirement, pension and deferred compensation plans in divorce proceedings, but does not require the court to do so.

The court has much discretion in determining the best way to allocate marital assets between parties and awarding retirement funds is only one of its options. If the court decides to award part of a retirement plan or similar account, it has considerable flexibility in determining how and when payments will be received. However, flexibility and discretion do not equate to a mandate that every divorce litigant with a retirement account must share it with an ex-spouse.

The retirement account or pension plan is often, next to the family home, a divorcing party’s largest asset, so it may become necessary for the court to consider dividing it. However, for example, where the retirement account represents only a fraction of the total marital property, some of the retirement asset was acquired before marriage, and other funds are available for a monetary award, the court may decide to let the retirement asset remain untouched.

For purposes of divorce in Maryland, a court has broad discretion in evaluating pensions and retirement benefits. In a Maryland divorce action, pension or retirement benefits can be valued (1) as equal to an employee’s contributions to the pension plus accrued interest or market experience thereon, (2) as the “present value” of future benefits expected to be received by the employee after retirement, or (3) through determination of a percentage to be paid to the nonemployee spouse from any future retirement payments received by an employee spouse, payable “as, if, and when” received. The method used for valuing a spouse’s pension or retirement benefits in dividing marital property upon divorce will depend upon the facts and circumstances of the particular case.

Under this approach, benefits payable in the future have to be discounted for interest earned in the future, for mortality, and for vesting (if not fully vested at the time of divorce). The benefits then have to be calculated with respect to the employee-spouse’s life expectancy as a retiree. This calculation involves considerable uncertainty, and the amount yielded changes as different assumptions are used with respect to mortality, job turnover and other factors. It has been recognized that this kind of calculation can be very difficult and that, where it becomes too speculative, the trial court should use a different method of valuation.

Under either the “contributions plus” method or the “present value” method, the court has discretion to order payment to the nonemployee spouse in either a lump sum or in installments, depending primarily on other assets and relative financial positions of the parties.

The court need not determine the value of a pension, retirement, profit sharing or deferred compensation plan, unless a party in a divorce proceeding has given notice that the party objects to a distribution of retirement benefits on an “if, as, and when” basis. If timely notice is not given, any objection to a distribution on an “if, as, and when” basis shall be deemed to be waived unless good cause is shown.

The third method, which has been referred to as the “if, as, and when” method, recognizes that the value of a pension at the time of divorce cannot be ascertained with certainty until the employee spouse retires.

This third method, which has been used widely, uses a formula for computing the nonemployee spouse’s share of any future payments the employee spouse receives under the plan, payable to the nonemployee spouse as, if, and when paid to the employee spouse. Under this approach, of course, it is unnecessary to determine the value of the pension. The court needs to do no more than just state the formula to be used to determine the percentage to which the nonemployee spouse will be entitled.

The formula used in an “if, as and when” award of pension benefits, sometimes referred to as the “Bangs” formula, calculates the value of the pension to which the nonemployee spouse is entitled as a percentage, usually 50 percent (but at the court’s discretion), multiplied by a fraction, the numerator of which is the number of months and years of employment during the marriage, and the denominator of which is the total number of months and years of employment at the time of retirement.

Maryland’s appellate courts have disapproved of attempts to freeze the nonemployee spouse’s share of the employee spouse’s pension to its then current fixed value at the time of divorce. They have observed that an employee spouse’s increases in salary after divorce would be based in part on work performance during the marriage.

Moreover, any future adjustments by management might well relate to the length of the employee spouse’s total service, including the period of the marriage.

The court may transfer ownership of an interest in a pension, retirement, profit sharing or deferred compensation plan, from one party to either or both parties as an adjustment of the equities and rights of the parties concerning marital property, whether or not alimony is awarded.

Yes. Awarding a nonemployee spouse a portion of an employee spouse’s pension benefits on an “as, if, and when” basis, rather than as a lump sum, is permissible, despite the employee spouse’s preference for a lump sum award. Likewise, awarding a nonemployee spouse a portion of an employee spouse’s pension benefits on an “as, if, and when” basis, rather than as a lump sum, is permissible, despite the nonemployee spouse’s preference for a lump sum award.

Survivor benefits attached to a pension are property separate and apart from the pension itself. Although survivor benefits are like a pension, they have been treated as marital or non-marital property, depending on when and how the survivor benefits were acquired.

A spouse seeking to recover an interest in the survivor benefit attached to the other spouse’s pension must request the survivor benefit in addition to any request for the pension benefit itself.

A divorced party with a retirement cannot reduce a former spouse’s share of pension benefits by electing survivor benefits for someone other than the ex-spouse. Although an employee spouse is free to elect survivor benefits for someone other than the nonemployee former spouse, the nonemployee spouse’s pension benefits should not be less than they would have been if such an election had not been made.

Done properly, transfers between spouses incident to a divorce or separation instrument are not taxable events for either the transferor or the transferee. Consult a tax advisor with experience in transfers incident to divorce for guidance on how to transfer retirement assets properly.

Of course, previously tax-deferred income will be taxable to the transferee spouse upon withdrawal from a retirement account. However, under certain circumstances, the transferee spouse may avoid withdrawal penalties. Consult a tax advisor for guidance on how to do so.

A Qualified Domestic Relations Order, or QDRO (pronounced “quadro”), is one type of order that is issued by a court to transfer retirement assets. Although the term has a technical meaning, referring to employer-sponsored plans subject to ERISA, it has come to be used to refer to just about any order to transfer retirement assets. A QDRO must be approved by the administrator of the retirement plan as well as the court before it is carried out.

Pension plan benefits payable to an employee spouse under an ERISA plan can be redirected to an alternate payee non-employee spouse only through the mechanism of a Qualified Domestic Relations Order or QDRO. Absent such a qualified order, not only will the pension plan administrator refuse to implement the court’s decision, but there is at least a reasonable argument that a nonqualified order may be invalid even as between the parties.

An order will not be “qualified” if it grants any type or form of benefit, or any option, not otherwise provided under the plan, or results in a plan having to pay increased benefits.

These are terms used in QDROs and other retirement orders. “Participant” refers to the spouse who is an employee or former employee of the plan sponsor, and “alternate payee” refers to a nonemployee spouse.

Under ERISA, an alternate payee is “any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under the plan with respect to such participant.” An alternate payee, under a QDRO, is treated as a plan beneficiary.

One spouse’s creation of an individual retirement account or IRA solely in the other spouse’s name but primarily with the contributor spouse’s non-marital funds may indicate the contributor spouse’s intent to make a gift to the recipient spouse, and to relinquish equitable interest in the funds. The contributor spouse’s conduct may support classification of the IRA as the recipient spouse’s non-marital property upon divorce.

If a divorce occurs after at least 10 years of marriage, you can collect retirement benefits based on your former spouse’s Social Security earnings record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry, you generally cannot collect benefits on your former spouse’s earnings record unless your later marriage ends (whether by death, divorce or annulment).

Get more information at

If your divorced spouse dies, you can receive benefits as a widow/widower if the marriage lasted 10 years or more. Benefits paid to a surviving divorced spouse who is 60 or older will not affect the benefit rates for other survivors receiving benefits.

In general, you cannot receive survivors benefits if you remarry before the age of 60 unless the later marriage ends, whether by death, divorce, or annulment.

If you remarry after age 60 (50 if disabled), you can still collect benefits on your former spouse’s record. When you reach age 62 or older, you may get retirement benefit on the record of your new spouse if they are higher. Your remarriage would have no effect on the benefits being paid to your children.

Quote Icon