Understand QDROs in Maryland: Dividing Retirement Assets in Divorce
March 28, 2025
Divorce is a life-altering event that affects nearly every aspect of a person’s life, including financial and legal matters. For high-net-worth individuals and parents, one crucial area often overlooked during divorce proceedings is estate planning. Wills, trusts, and beneficiary designations that once reflected a shared future with a spouse should be revisited to protect assets and ensure that one’s wishes are honored post-divorce. In Maryland, understanding how divorce intersects with estate planning is essential for safeguarding wealth and securing a legacy for children and other loved ones.
How Divorce Impacts Estate Plans in Maryland
Maryland law provides certain automatic revocations of estate planning provisions upon divorce, but relying solely on these default rules can lead to unintended consequences. Taking proactive steps to update estate plans is essential to ensuring assets are distributed according to one’s current wishes, not an outdated arrangement with an ex-spouse.
1. Wills and Divorce: What Changes?
Maryland law automatically revokes any provisions in a will that benefit a former spouse once the divorce is finalized. However, this does not mean the entire will becomes invalid. Instead, the will is interpreted as if the ex-spouse had predeceased the testator (the person who made the will). While this provides some protection, it can create gaps in the estate plan, especially if the will does not name alternate beneficiaries or executors.
What to Do:
- Update your will immediately after separation or divorce to avoid ambiguity.
- Appoint a new personal representative if your former spouse was previously named.
- Ensure guardianship and trustee designations for minor children reflect current preferences, as an ex-spouse may still have custodial rights but should not necessarily control financial decisions.
2. Trusts and Divorce: Avoiding Pitfalls
Trusts are often used in high-net-worth estate planning to protect assets, minimize taxes, and provide for children. However, divorce complicates the administration and validity of trusts, particularly those that involve a former spouse.
- Revocable Trusts: A revocable living trust typically includes provisions benefiting a spouse. Following divorce, Maryland law generally treats these provisions as revoked, similar to wills.
- Irrevocable Trusts: Unlike revocable trusts, irrevocable trusts usually cannot be changed after they are established. If an irrevocable trust names an ex-spouse as a trustee or beneficiary, legal action may be required to modify or dissolve it, depending on the trust’s terms and Maryland law.
What to Do:
- Review and amend revocable trusts to reflect new estate planning goals.
- Determine whether irrevocable trusts can be modified through legal means.
- Consider creating a new trust for children to protect their inheritance from unintended claims.
3. Beneficiary Designations: A Commonly Overlooked Risk
One of the biggest estate planning pitfalls post-divorce is failing to update beneficiary designations on life insurance policies, retirement accounts, and financial assets. Unlike wills, which automatically revoke a former spouse’s inheritance rights under Maryland law, beneficiary designations on assets such as IRAs, 401(k)s, and life insurance policies remain unchanged unless updated manually. This means an ex-spouse could unintentionally inherit substantial assets.
What to Do:
- Review and update all beneficiary designations as soon as possible.
- Consult a financial advisor to align retirement accounts with new estate planning strategies.
- Ensure contingent beneficiaries are correctly named to protect children and heirs.
Protecting Children’s Inheritance After Divorce
For parents, ensuring children inherit assets in a structured, protected manner is a top priority. Divorce presents unique challenges in this regard, particularly when a former spouse could influence or control an inheritance.
1. Setting Up a Trust for Children
Instead of leaving assets directly to children, many divorcing parents establish a trust to ensure funds are managed responsibly. Without a trust, an ex-spouse could gain control over a minor child’s inheritance, potentially using it in unintended ways.
What to Do:
- Create a trust with a reliable trustee to manage funds until children reach a responsible age.
- Use specific language to prevent an ex-spouse from controlling the trust.
- Consider a spendthrift clause to protect children’s inheritance from creditors or poor financial decisions.
2. Updating Guardianship Provisions
Divorced parents should also review guardianship designations. While an ex-spouse is typically the default guardian, alternative guardians may be necessary if both parents pass away.
What to Do:
- Clearly outline guardianship preferences in an updated will.
- Name a trustee separate from the custodial guardian to manage assets on behalf of minor children.
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Estate Planning Strategies for Individuals Post-Divorce
For many individuals, post-divorce estate planning involves additional considerations to minimize tax liabilities and protect assets. Key strategies include:
1. Updating Powers of Attorney and Healthcare Directives
Many spouses grant each other financial and medical decision-making authority through powers of attorney and healthcare directives. Failing to update these documents means an ex-spouse could retain control over critical financial and medical decisions. Health care directives are not affected by divorce. Financial powers of attorney are affected by divorce as the spouse agent is no longer the agent after divorce is filed or after a separation agreement addressing this is executed by the spouses.
What to Do:
- Revoke and replace financial and medical powers of attorney to ensure the right individuals are appointed.
- Name a trusted family member or advisor to manage financial and healthcare matters.
2. Addressing Business Succession Planning
Divorced business owners must revisit their succession plans to ensure their business interests are protected. If a former spouse was involved in the business or listed as a successor, restructuring may be necessary.
What to Do:
- Revise buy-sell agreements to prevent an ex-spouse from retaining interest in the business.
- Consider restructuring ownership to minimize legal complications.
3. Tax Implications of Post-Divorce Estate Planning
Divorce changes tax obligations, particularly in estate and gift tax planning. High-net-worth individuals should reassess tax strategies to optimize wealth transfer and minimize liabilities.
What to Do:
- Consult an estate planning attorney and financial advisor to implement tax-efficient strategies.
- Reevaluate charitable giving plans for tax benefits and legacy planning.
Final Thoughts: Proactive Estate Planning After Divorce
Divorce is a turning point that demands careful estate planning updates. Without proactive revisions, outdated documents can lead to unintended consequences, including assets passing to an ex-spouse or legal battles over inheritance. By revisiting wills, trusts, beneficiary designations, and guardianship provisions, individuals can secure their legacy and protect their loved ones.
At Baumohl Hamburg LLC, we help Maryland families navigate the complexities of estate planning after divorce. We work with other highly trained experts in estate planning after divorce. Whether you need to revise an existing estate plan or create a new one, we are here to collaborate with other professionals and help provide tailored solutions that safeguard your assets and ensure your wishes are honored.
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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal advice. It is always recommended to consult with a qualified attorney for personalized guidance and representation in legal matters.
About the Author
Harry A. Baumohl, Esq., a founder of Baumohl Hamburg, LLC, stands among Maryland's elite family law practitioners, bringing: Over Four Decades of Proven Excellence; Established track record in complex family law matters; Strategic location serving Baltimore County and surrounding jurisdictions.
Specialized Expertise in High-Stakes Family Law Cases
- Complex divorce litigation for high-net-worth and high asset individuals and families with sophisticated asset division and financial untangling.
- High-conflict custody and parenting disputes.
- Prenuptial Agreements, Preventive Planning, Mediation and Collaborative Law solutions.
Distinctive Approach to Client Representation
- Results-driven methodology backed by decades of experience and success.
- Strategic thinking combined with emotional intelligence mixed with calm, measured guidance during turbulent times.
- Proactive communication and responsive client service.
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- Primary office in Pikesville, Baltimore County
- Active practice throughout: Baltimore County; Baltimore City; Carroll County; Harford County; Howard County & Anne Arundel County.
Ready to benefit from Harry's unique blend of experience and strategic thinking?
- For Clients:Visit our website at BahaLaw.com. And for direct access feel free to schedule a confidential consultation to discuss your family law matters. Direct access to seasoned counsel who understands the complexities of Maryland family law. Harry@BahaLaw.com.
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Related Articles:
- Understand QDROs in Maryland: Dividing Retirement Assets in Divorce
- Enforcing or Challenging Prenuptial and Postnuptial Agreements in Maryland
- Business Valuation for Divorce Purposes in Maryland
- Why Financial Expertise Matters in High-Net-Worth Divorces
- The Role of a Certified Divorce Lending Professional
- Protecting Inherited Wealth and Gifts in Maryland Divorce
