Vince Wills and Christina DeVault are divorce attorneys from Maryland. A fellow of the American Academy of Matrimonial Lawyers, Vince has also been named as a top attorney for Maryland and the Washington Metropolitan area by Super Lawyers. Christina represents clients at all stages and aspects of family law, helping clients make decisions with confidence. In this podcast Vince and Christina discuss the differences between marital and separate property, the importance of premarital agreements, and how pensions and retirement plans will be divided in the event of a divorce.
Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Divorce Attorneys Heather Collier and Erik P. Arena of Dragga, Hannon, and Wills.
Bio:Family law attorneys Heather Collier and Erik Arena, are both partners at the Dragga, Hannon, and Wills law firm in Rockville Maryland. In 2017, Heather was recognized as a “Super Lawyer” in the area of family law for the fourth consecutive year, and she was also selected to the Super Lawyers’ list of Top 50 Women Attorneys in Maryland. Erik has been named a “Super Lawyer” in family law and a “Best Lawyer” in Maryland family law by Best Lawyers in America.
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Read the Transcript of this Podcast Below.
Property Division in Maryland
Diana Shepherd: Can you tell us what the difference between an equitable distribution state and a community property state is? What kind of state is Maryland?
As I understand it, in a community property state, community property is presumed to be jointly owned and as a result it is divided equally during a divorce. Maryland is an equitable distribution state so title doesn’t determine whether property is marital or not. Also marital property does not have to be distributed equally, only fairly and equitably. The first step in equitable distribution is to identify all of the marital property that the parties have acquired during the marriage. The second step is to value the marital property.
Once all the marital property is identified and valued, we look at the total marital property titled in each spouse’s name. If there is an unequal distribution of the marital property in one spouse’s name, then we can make a monetary award regarding property settlement to the spouse that has less marital property titled in his or her name.
What is the difference between marital property and nonmarital property?
Marital property is any property that was acquired during the marriage. By acquired I mean paid for with marital funds. How something is titled doesn’t determine whether or not it is marital property. As long as it is paid for during the marriage with marital funds, it is marital property. So, for example if one spouse buys a car that is titled only in his or her name, the car is marital property because it was paid for during the marriage with marital funds.
Nonmarital property is property that a spouse owned before the marriage, property that was acquired by gift or inheritance from a third party, property that was excluded by a valid agreement such as a prenuptial agreement and any property that is directly traceable to any nonmarital property. For example if a spouse had a bank account before the marriage and then used money from that account to buy a car during the marriage, the car is nonmarital property because it directly traceable to the nonmarital bank account.
Can the court order one spouse to transfer marital property to the other spouse?
If property is titled only in the name of one spouse, then generally a court cannot order one spouse to transfer the property to the other spouse. However there are three exceptions, a court can transfer an interest in a pension, retirement account or other type of deferred compensation from one spouse to the other. A court can transfer title to real property that is jointly owned by the parties and used as their principal residence. And third, a court can transfer family used personal property from one spouse to the other. Family used personal property is personal property such as furniture or a car that is owned by one or both spouses, and used primarily for the children. A court can also order the sale of jointly owned property and divide the proceeds equally.
Does a premarital or prenuptial agreement override normal property division rules?
If there is a valid prenuptial agreement, it will control how property will be divided. If the prenuptial agreement excludes certain property from becoming marital property then property that is excluded will not be marital property. If the prenuptial agreement contains a waiver to a monetary award or other form of equitable distribution such as a transfer of a pension interest, then a court will be prohibited from granting a monetary award or making some other form of equitable distribution such as transferring a pension and interest from one spouse to the other.
If the prenuptial agreement contains a waiver of alimony then a court will be prohibited from awarding alimony from the party who waived it. The only thing that a prenuptial agreement will not control is something to do with children, since parties cannot tie up courts hands when it comes to children.
How are tangible assets such as valuable artwork, antiques, jewellery collections and luxury cars valued during a divorce?
There are several ways to value that type of property. The parties can agree on the values, if they can’t agree either party can hire an expert to value the property. Also an owner of property is permitted to give an opinion about the value of the property. However with valuable artwork, jewellery and luxury cars, the better approach is to have the property valued by an expert.
Many high net-worth clients come from families with significant wealth. If one spouse inherits significant money or other property during the marriage, what can be done to preserve that inheritance during a divorce?
Property that is acquired during the marriage, by gift or inheritance by a third party is nonmarital property. The problem that usually occurs is that the gift or inheritance is commingled with marital property so that you can no longer directly trace it to the nonmarital source. For example if a spouse inherits money and deposits money into the joint family account or into some other account and then deposits his or her pay to that account, it is impossible to directly trace a dollar of the inherited money from a dollar of the marital funds.
In that event all of the funds become marital due to commingling. The reality is that most people don’t live their married lives planning for a divorce. So probably the best way to preserve the nonmarital property is to have the parties sign a valid prenuptial or postnuptial agreement.
What property is considered during a valuation?
All marital property is considered; any business, professional practice, real estate, and retirement account.
If one spouse owns more marital property than the other spouse, what can the court do to fairly distribute the property?
If one spouse has more marital property titled in his or her name then the other spouse, the court can grant the spouse with less marital property a monetary award. For example let’s say that the only item of marital property in the parting zone is a boat, which is titled in the husband’s name and has been valued at $30,000. Since the court cannot transfer the boat from the husband to the wife, to balance the inequity where the husband has $30,000 and the wife has zero, the court could grant the wife a monetary award that was fair; it could be $15,000, it could be $10,000 or it could even be $20,000. The award doesn’t have to be equal as long as it’s fair.
There are 11 statutory factors that the court considers when making a monetary award. They include the length of the marriage, the monetary and non-monetary contributions of each spouse to the marriage, the reason for the breakup of the marriage, the value of all property owned by each party including nonmarital property, how marital property was acquired, and any other factor that the court thinks is fair.
If only one spouse worked outside the home during the marriage, are contributions to that retirement accounts considered marital or nonmarital property.
Contributions made from the working spouse’s wages to the working spouse’s retirement accounts during the marriage would be considered marital property and subject to distribution under Maryland law.
How are pensions and retirement plans usually divided in Maryland?
There’s a difference between pensions, which are known as defined benefit plans and retirement plans such as 401Ks or Roth IRAs, which are known as defined contribution plans. Defined benefit plans, which all refer to as pensions are commonly divided on an “if and when” basis. Division of a pension on an “if and when” basis means that a spouse may be granted a fractional share of the other spouse’s pension when that pension is received.
However if a court is put on notice by a spouse, and a spouse objects to a division of a pension on an “if and when” basis, a court may need to calculate the present value of the pension and determine what, if any monetary reward it will grant. If a court determines a pension’s present value and grants a monetary award to the other spouse, the court has the discretion to order payment in a lump sum or installments. The method of payment is largely dependent upon the spouse’s other assets and financial situation.
Defined contribution plans such as 401Ks or Roth IRAs are usually totaled up and then divided equally by a court. Generally the spouse with more retirement assets in their individual name will be ordered to make a lump sum transfer to the other spouse in an amount to be determined by the court.
If a court grants one spouse a fractional share of the other spouse’s pension, a court will enter a retirement benefit order to embody the terms of the payment. If the court grants one spouse a lump sum transfer from the other spouse’s defined contribution plan, the court will enter a separate retirement benefit order to effectuate that transfer. The only type of pension benefit that cannot be divided under Maryland law is a VA disability compensation benefit.
Where there are multiple properties, some owned by one spouse before the marriage, some income properties, and some family residences and vacation homes, how will these be divided on divorce? Are they all subject to division or are some exempt?
The answer is it depends. I will break those down by the type of property you listed. If a home is owned by a spouse prior to marriage, assuming there was no marital money contributed to the home during the marriage such as a payment to a mortgage or payments made to the upkeep of the property, then no, this property would not be subject to distribution on divorce. But it could be considered as a factor in the determination of a monetary award.
If spouses own an income property, assuming the income property is jointly titled and was purchased during the marriage, the income property is subject to division on divorce. In this scenario when an income property is not used as a principal place of residence of the spouses, the property cannot be transferred to one of the spouses. The court only has the authority to order the property sold and the proceeds divided equally.
If an income property was purchased during the marriage with marital money and is titled to only one of the spouses, the property is not subject to a request to transfer the property to the one spouse without the title. But the spouse without title can ask the court for a monetary award to account for their interest in the home. The same is true for family residents in vacation homes that are not used as the spouse’s principal place of residence.
If a property is titled jointly and used as the spouse’s principal place of residence, either spouse can ask the court to transfer the property to them. The court has the discretion assuming both spouse have the ability to refinance the home to remove the other spouse from the mortgage, if there is a mortgage, to transfer the home to either spouse. Or a court may order the home to be sold and proceeds divided equally. If the home is transferred to one spouse, the other spouse would be entitled to a monetary award for their interest in the home.
What happens if both spouses want to keep 100% of the same property, such as the house for example?
Taking the spouse’s home as an example it depends how the property is titled. If the property is titled in one spouse’s name, only the spouse who owns the home can keep the property, because the court does not have the authority to transfer the home title in one spouse’s name to the other spouse. The house that is titled in only one spouse’s name is still marital property and the spouse who doesn’t have title to the home can ask the court for a monetary award to account for their interest in the home.
As mentioned in my previous answer, if the property is titled in both names and is used by the spouse as their principal place of residence, either spouse can ask the court to transfer the property to them. The court has the discretion again, assuming both spouses have the ability to refinance the home to remove the other spouse from the mortgage, if there is a mortgage, to transfer the home to either spouse. Or a court may order the home to be sold and proceeds divided equally. For other marital property, such as furniture in the home, the court can order the furniture sold and proceeds divided.
Most people going through divorce are concerned about getting their fair share, what advice would you give them?
The advice that I would give them is that Maryland is an equitable, not equal division state. Commonly fair in Maryland is an equal division of marital property absent extraordinary facts. What we tend to see clients struggle with in terms of fairness is when premarital or nonmarital assets become commingled with marital assets, and the spouse seeking the return of their premarital or nonmarital assets is unsuccessful in their request, because the court can’t trace the money back to the premarital or nonmarital source.
This often happens when premarital or nonmarital retirement or brokerage accounts are combined with a marital retirement or brokerage account. This also happens with the purchase of real property. The advice I would give clients is keep your premarital or nonmarital retirement and brokerage accounts separate from any marital retirement or brokerage account. If it is not possible to keep premarital or nonmarital retirement or brokerage accounts separate, then the spouse should keep meticulous records of the retirement or brokerage accounts from the month before the marriage and throughout the entire marriage.
It is a bit more difficult when it comes to the purchase of real property because you cannot keep premarital and marital money separate when you purchase a home. Instead, clients should keep meticulous records of where money came from that was used to contribute to the purchase of real property.