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Family Law Attorneys Bel Air MD

Family Law Attorneys Bel Air MD

Family Law Attorneys Bel Air MD, Family Law Lawyers Bel Air MD, Family Law Firms Harford County MD, Divorce Attorneys Bel Air MD, Divorce Lawyers Harford County MD


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If you’re in Bel Air, MD or elsewhere in Harford County MD, and you are facing a divorce, trust the competent, experienced counsel of Attorney James Gahring Gault.  Conveniently located in the heart of Bel Air, adjacent to the Harford County Circuit Court, our Family Law Firm provides trusted legal counsel for divorce, child custody, and other family law matters.  Free consultations are always provided before you make a decision.  Convenience weekend and evening hours are available by appointment.  Call today!

Alternate Payee

As amended by the Retirement Equity Act of 1984, ERISA provides that an “Alternate Payee” may receive all or a portion of the benefits payable to a Plan Participant if done pursuant to a Qualified Domestic Relations Order (“QDRO”) as discussed herein.

“Alternate payee” means any spouse, former spouse, child or other dependent of a Plan Participant who is recognized in the governing court Order as having a right to receive all, or a portion of, the benefits payable under the Participant’s pension or retirement plan.

Valuation

The Circuit Court has broad discretion in evaluating pension and retirement benefits, and in determining the manner of distribution.

In Maryland, there are three (3) possible methods of valuing pensions at the time of divorce. The first method places value on the pension based on the employee’s contributions, plus accrued interest. The second method assesses the present value of future benefits the employee is expected to receive after retirement when it vests; this involves some actuarial speculation. The third method awards a fixed percentage to the non-employee spouse, payable “as, if and when” received by the employee spouse.

The third method is commonly known as the “Bangs Formula” as it was set forth by the Maryland Court of Special Appeals in Bangs v. Bangs, 59 Md. App. 350, 475 A.2d 1214 (1984).  This formula calculates the marital portion of a pension earned both during and outside of a marriage.  Specifically, this method of valuation applies a coverture formula to allocate pension benefits based on the length of the marriage and the length of employment by the pension holder.

As a general rule, the “Bangs Formula” involves dividing the total months of the marriage during the spouse’s employment by the total months of the spouse’s employment credited toward retirement benefits and dividing that fraction in half. The result of that calculation would then be multiplied against the monthly pension benefit to determine the amount of the ex-spouse’s share of a monthly retirement benefit.

The three (3) methods of determining the value of a pension have been developed because most often the pension has not vested as of the date of the divorce.

401(k)

A 401(k) plan is a ‘defined contribution’ plan established by an employer.

Eligible employees contribute pre-tax dollars to the plan (i.e., salary deferral / salary reduction) with pre-tax dollars and/or on a post-tax basis.  Employers often make matching contributions to the plan. Upon retirement, the employee receives whatever level of benefits the amount contributed on his behalf will provide.  Earnings accrue on a tax-deferred basis.

The dollars contributed by the employee into his or her 401(k) will vest immediately; employer contributions will vest within a number of years.  An employer uses a vesting requirement in a 401(k) plan in order to persuade the employee to remain with the enterprise.

A 401(k) account is usually divided at the time of the divorce decree; hence, there is no further interaction between the parties once the alternate payee’s share has been distributed or rolled-over.  In general, the alternate payee is not required to wait for the employee-spouse to actually withdraw or annuitize the 401(k) account balance upon retirement or later.  However, it is possible for some 401(k) plans to allow for distribution of the alternate payee’s share only at the time of the employee-spouse’s retirement, death, or termination from employment.

The account can be allocated incident to the divorce: (i) by use of a Qualified Domestic Relations Order (“QDRO”) with respect to ERISA qualified plans, or, (ii) by use of a Retirement Benefits Order (“RBO”) or other domestic relations order with respect to those plans that are not ERISA qualified, but otherwise constitute transfers incident to divorce.

The vested portion of all contributions to a 401(k) plan constitutes marital property.  If the entire 401(k) fund accrued during the marriage, the marital property interest can be valued by a review of the most recent account statement.  However, if part of the account was earned prior to the date of marriage, then both the marital and non-marital portions will need to be determined.  There are at least four separate options to determine valuation.

Disability Benefits

A work-related disability pension plan constitutes marital property.  Accordingly, “Disability Benefits” are a type of retirement benefit subject to equitable distribution (unless expressly excluded), whether the pensioner is disabled before or after the parties’ divorce.

Note: Military Disability Pay is not considered to be divisible marital property.  However, a former spouse might not be precluded from making a claim against their ex-spouse’s ‘military pension fund’ when there are no references to any disability on the part of the military member.

Railroad Retirement Benefits

The Railroad Retirement Act of 1974 replaces the Social Security Act for rail industry employees and provides monthly annuities for employees upon retirement or disability. Benefits available to retired railroad workers under the Act include Tier I and Tier II components.  Tier I is a substitute for Social Security benefits, and corresponds exactly to those an employee would expect to receive were he covered by the Social Security Act. Tier II is similar to a private pension plan in that it is tied to a worker’s earnings and career service.  With respect to allocation in a divorce action, Tier I benefits are not subject to division or assignment; however, Tier II benefits are divisible.

Income Tax

The transfer of an individual’s interest in an IRA or an individual retirement annuity to his or her spouse or former spouse under a divorce or separation instrument is not considered a taxable transfer.

When all or a portion of an IRA account owned by one spouse is awarded to the other spouse as part of the divorce decree, the tax consequences otherwise assessed on the account owner at the time of divorce, including the 10% early withdrawal penalty, can be avoided by accomplishing the division by a transfer of the IRA – rather than a withdrawal or a distribution.

Once the transfer is accomplished, the portion of the IRA transferred to the former spouse becomes the former spouse’s own IRA, and he or she then becomes responsible for tax liabilities resulting from future withdrawals, including the 10% tax penalty if money is withdrawn by the former spouse prior to attaining age 59½.

In cases where a party wants a distribution from a 401(k) presently, i.e., receive a check payable directly to him or her – not a rollover to an IRA – that direct distribution will be subject to 20% income tax withholding. However, it will not be subject to the 10% early withdrawal penalty since it is incident to the divorce.

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