Maryland Court Addresses Allocation of Retirement Benefits in Divorce

One of the most significant financial aspects of a divorce is the division of marital property. Under Maryland law, courts have the authority to identify marital property, assess its value, transfer ownership between the parties, and issue a monetary award in order to even out the rights of the parties. Depending on the case and the nature of the relationship between the spouses, the couple may be able to enter into an agreement specifying the allocation of property, instead of relying on the court to do so. In any case, because this part of the divorce proceeding can significantly affect the parties’ lifestyle going forward, it is important to consult with an experienced Maryland attorney as early in the process as possible.

One of the items subject to property division in divorce is a spouse’s interest in retirement plan benefits earned during the marriage. In a recent divorce case, the couple entered into a property settlement agreement that included a clause allocating future benefits from the retirement plan sponsored by the husband’s employer. The agreement incorrectly implied that the plan was governed by federal law (ERISA), even though it was exempt from that law, and further stated that the divorce judgment would serve as a QDRO (a Qualified Domestic Relations Order). Neither party took any steps to obtain a QDRO for submission to the pension plan.

The husband remarried and designated his new wife as the beneficiary under the retirement plan. Upon the husband’s death, a dispute arose between the former wife and the second wife as to the entitlement of the retirement benefits. In accordance with the property settlement agreement, the former wife applied to the pension plan for a portion of the benefits that accrued during the marriage. The pension plan rejected her request, arguing that it never received a QDRO indicating that the ex-wife was a beneficiary of the husband’s death benefits. Next, she filed a complaint against the current wife, alleging that she had been unjustly enriched by receiving all of the pension and death benefits. Furthermore, she requested the imposition of a constructive trust on the portion of the pension and death benefits that the second wife received.

The circuit court ruled in favor of the ex-wife, concluding that it would be inequitable for the second wife to keep the benefits of the plan because she would be receiving a “windfall” of the ex-wife’s portion. The court further granted the ex-wife a construction trust in a portion of those benefits. The wife appealed. The court of special appeals affirmed the judgment, concluding that there was enough evidence to support the court’s determination that the equities supported the constructive trust. The court pointed to the mutual intent of the spouses expressed in the property settlement agreement.

The court of appeals concluded that the lower court did not abuse its discretion by:  1) issuing a posthumous order directing the retirement plan to allocate to the ex-wife part of the husband’s death benefits and 2) imposing a constructive trust on the amount of those benefits that the wife already received. While the court did not cite any Maryland court decisions to support its ruling, it did find support from other jurisdictions. As this case illustrates, dividing up marital property is no simple and clear-cut task. There are many legal issues to consider and contemplate that can affect your rights to property.

If you are thinking about a divorce, you are encouraged to contact Anthony A. Fatemi, a Maryland family law attorney, for representation and legal guidance.  Mr. Fatemi can be reached at (888) 519-2801 or  (301) 519-2801.

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