What is the “Marital Share” of a retirement account?

While seemingly a simple question, this is quite loaded and entirely depends on the jurisdiction of the divorce.

When did the marriage start?

The one thing most jurisdictions seem to agree on is that the marital share starts to accrue on the date of marriage. So what is the date of marriage? For some couples, it is simply the wedding date. What about for couples who were in a domestic partnership first, and then married? That’s a question specific to the jurisdiction. Some automatically merge the time of the domestic partnership with the marriage which would make the marriage start at the beginning of the domestic partnership. Some jurisdictions terminate the domestic partnership at the start of the marriage, meaning there are two distinct relationship types this couple has entered into, but that the marriage is second and not “backdated” to the beginning of the domestic partnership.

Another circumstance that might not have a clear date on which the marriage began is a common law marriage. While the parties might agree that all of the legal elements have been satisfied to create a common law marriage, they might disagree on when all those elements were satisfied.

When is the termination date for the accrual of marital assets?

Jurisdictions differ as to when they terminate the accrual of marital assets. As an example, Maryland terminates the accrual of marital assets as of the date of divorce unless good cause is shown otherwise or another date is agreed to by the parties. Across the river, Virginia terminates the accrual of marital assets as of the date of separation unless good cause is shown otherwise or another date is agreed to by the parties. Parties can separate months or years before the divorce becomes final, so depending on where the divorce occurs will dictate whether the retirement contributions being made during the separation period are marital or separate.

What about the interest accrued on my pre-marital retirement balance?

Many times parties are working for an employer before the marriage and continue that employment during the marriage. For some, the pre-marital retirement balance is substantial. Therefore, the interest earned thereon throughout the marriage could also be substantial. If that account were separate and not touched during the marriage, it is typically clear that the pre-marital account and all interest thereon, would be separate property. The issue is not as clear when the account becomes co-mingled during the marriage.

One question is who would be responsible for tracing out the interest earned on the pre-marital balance? Typically, the party making the claim that the funds are non-marital has such burden. They could hire an expert to do that tracing. It all depends on the exact circumstances of the case and is a conversation that should be had with one’s attorney. An estimate or approximation could be used in lieu of a full tracing, if the party does not want to hire an expert to trace every penny.

Another question is how has the market performed since the marriage, and is it worth it to do the tracing? If it was a shorter marriage during a volatile period or downturn in the market, perhaps asking for the market experience on the pre-marital balance is actually a detriment to the account holder. Again, some jurisdictions require the tracing of the investment experience, so for some parties it may not be an option whether the tracing should happen. However, in jurisdictions where the law is not clear these are issues worth consideration before making claims.

What if a loan is outstanding against the retirement account?

If a loan is taken out against the retirement account, it is typically viewed as an asset of the account and may or may not be included in the account’s “total balance” as reported on the account statement. So, that means when determining the “marital share” the parties must determine whether the outstanding loan balance will be included or excluded. Some jurisdictions have laws and cases to handle this situation. Others do not. In jurisdictions that do not have laws and cases on point, some of the considerations include why was the loan taken out? If it was used solely by the party who owns the account, perhaps it makes sense that the other party’s share is not impacted by the outstanding loan balance. If, however, it was used for joint, marital purposes, perhaps the other party’s share should be impacted by such loan. For jurisdictions without laws or cases on the issue it is quite case and fact specific and can be a point of contention in negotiations.

How does all this relate to my QDRO?

Many times, retirement plan administrators suggest dividing the “marital share” of the retirement account, and parties will agree or be court ordered to divide the “marital share” of retirement interests. To be sure, the proper amount of funds is being transferred to the former spouse, it is important to properly define the “marital share.” This can be done by providing a formula or doing out the math to determine a specific dollar amount or percent of the account to be transferred. Some plan administrators may allow a formula, others may not. Markham Law Firm can help figure out how the information can be phrased to the plan administrator, and if in a jurisdiction where we do not practice, can work with your local counsel to prepare an acceptable QDRO that complies with your state’s definition of “marital share.”

Have additional questions, or want us to help with your QDRO? Contact us at qdro@markhamlegal.com or 240-396-4373.