Maryland Equitable Distribution Guide

Maryland uses a distinctive three-step process to divide property in divorce that sets it apart from most other equitable distribution states. Courts first classify property as marital or nonmarital, then value the marital assets, and finally craft a monetary award based on 11 statutory factors. Understanding this framework—and Maryland's unique "source-of-funds" approach to tracing—is essential for protecting your financial interests, whether you're filing a limited or absolute divorce.

This guide explains how Maryland Family Law Article §§ 8-201 through 8-205 govern property division, what factors courts must weigh, and practical strategies for achieving a fair outcome.

Maryland's Three-Step Property Division Process

Maryland courts follow a mandatory three-step process when dividing property in divorce:

1. Classification: Identify and classify each asset as marital or nonmarital property
2. Valuation: Determine the fair market value of all marital property as of the divorce date
3. Monetary Award: Grant a monetary award (and in limited cases, transfer property) to achieve an equitable result

Unlike states that simply divide assets, Maryland courts cannot transfer most property titled in one spouse's name to the other. Instead, the court grants a monetary award to equalize the distribution. The exceptions allowing actual transfers are limited to: pensions and retirement plans, family-use personal property (with lienholder consent), and the jointly-owned marital residence.

Marital vs. Nonmarital Property

Under FL § 8-201, marital property includes all property acquired by either or both spouses during the marriage, regardless of how it's titled. However, the following are classified as nonmarital property:

• Property acquired before marriage
• Gifts and inheritances from third parties (even if received during the marriage)
• Property excluded by valid prenuptial or postnuptial agreement
• Property directly traceable to any of the above sources

The Critical Exception: Tenants by the Entireties

Maryland has a special rule for real property held as tenants by the entireties (the default title for married couples): it's automatically classified as marital property by statute, even if one spouse contributed premarital or inherited funds to purchase it. The nonmarital contribution isn't lost—it's considered later in the monetary award analysis under factor (9)—but the property itself goes in the marital column.

Source-of-Funds: Maryland's Tracing Method

Maryland uses the source-of-funds approach (established in Harper v. Harper, 1982) rather than "inception of title" or automatic transmutation. This means classification depends on where the money came from to acquire each asset, not whose name is on the title.

When both marital and nonmarital funds are used to acquire an asset, the property is part marital, part nonmarital—proportional to each type of contribution. Each component shares proportionally in appreciation or depreciation.

Marital Share = (Marital Contributions ÷ Total Contributions) × Current Equity
Nonmarital Share = (Nonmarital Contributions ÷ Total Contributions) × Current Equity

Direct Tracing Required

The party claiming a nonmarital interest must directly trace the funds to a nonmarital source. Maryland courts have rejected "proportionate" or "income ratio" tracing methods. If marital and nonmarital funds are commingled so that direct tracing becomes impossible, the entire asset is treated as marital.

The 11 Statutory Factors for Monetary Awards

Under FL § 8-205(b), courts must consider all of the following factors when determining the monetary award:

1. Monetary and nonmonetary contributions to the well-being of the family
2. Value of all property interests of each party
3. Economic circumstances at the time of the award
4. Circumstances that contributed to estrangement
5. Duration of the marriage
6. Age of each party
7. Physical and mental condition of each party
8. How and when specific property was acquired, including effort expended
9. Nonmarital contributions to entireties property acquisition
10. Any alimony award and any use-and-possession order
11. Any other factor necessary for a fair and equitable award

No single factor takes automatic precedence. Courts weigh each based on the unique circumstances of each case. While many judges start near 50/50 as a reference point, the ultimate award depends on how these factors apply to your situation.

When Are Assets Valued?

Maryland values marital property as of the divorce date, using evidence presented at trial. Some delay between trial and the final decree is acceptable if reasonable and not prejudicial to either party.

This timing matters because property values can change dramatically during a lengthy divorce. If you separated years ago but are just now divorcing, assets are valued at the current (divorce) date—not your separation date.

How Separation Affects Property Rights

In Maryland, the marital acquisition period runs from marriage until divorce—not until separation. This means:

• Post-separation earnings are still marital property to the extent they exist at the valuation date
• Post-separation acquisitions (like lottery winnings) remain marital, though courts may give heavy weight to factor (8) ("how and when acquired") to justify unequal division
• Post-separation debts are nonmarital unless directly traceable to acquiring marital property

The 2023 divorce law reforms created new grounds for divorce (six-month separation, irreconcilable differences, mutual consent), but these don't change when property classification cuts off—only the final divorce decree ends the acquisition period.

Special Considerations for Complex Assets

Retirement Accounts and Pensions

Maryland's default approach is "if, as, and when" distribution—the nonemployee spouse receives their share when benefits are actually paid, rather than receiving a lump-sum present value. The marital portion uses the Bangs coverture fraction:

Marital Fraction = Service During Marriage ÷ Total Service at Retirement
Spouse's Share = Agreed % × Marital Fraction × Monthly Benefit

If either party wants present-value distribution instead, they must provide timely notice under FL § 8-204(b) and present valuation evidence. ERISA plans require a Qualified Domestic Relations Order (QDRO); government and military plans have their own order requirements.

Businesses and Professional Practices

Business interests acquired during marriage are marital property. Maryland distinguishes between passive appreciation (market forces—stays nonmarital if traceable) and active appreciation (due to the owner-spouse's efforts—becomes marital). Expert valuation is typically required for closely held businesses.

Real Estate

For non-entireties real property, the Harper source-of-funds method applies directly. For entireties property, it's all marital—but nonmarital contributions get special consideration under factor (9) when crafting the monetary award.

Since 2006, courts may transfer jointly-owned principal residences between spouses (subject to lien release) or authorize buyouts. This is an exception to the general rule against property transfers.

How Maryland Handles Debts

Maryland distinguishes between marital debt and nonmarital debt:

• Marital debt: Debt directly traceable to acquiring marital property—this reduces the asset's marital value in Step 2
• Nonmarital debt: Everything else (credit cards for living expenses, medical bills, taxes)—considered under the "economic circumstances" factor in Step 3, but doesn't reduce marital asset values

Important: Marital property cannot have "negative value." If the debt tied to an asset exceeds its value, that asset's marital value is zero—not negative. The excess debt is considered separately under the economic circumstances factor.

Creditor Rights

A divorce decree cannot bind third-party creditors. While the court may order one spouse to pay certain debts or include "hold harmless" provisions, creditors can still pursue any liable account holder or cosigner. Maryland's necessaries doctrine has been abolished, meaning neither spouse is automatically liable for the other's debts without a contract.

Crawford Credits: Post-Separation Payments

When one spouse makes payments on jointly-owned property after separation, Maryland may grant Crawford credits (named after Crawford v. Crawford, 1982). These discretionary credits reimburse post-separation carrying costs (mortgage, taxes, insurance, repairs) paid from nonmarital funds.

Key limitations:

• No credits for payments from marital funds before divorce
• Credits may be reduced for exclusive occupancy (fair rental value offset)
• Tax deductions taken may reduce the credit
• Existing use-and-possession orders may allocate these costs differently

Dissipation of Marital Assets

Dissipation occurs when one spouse uses marital property for their own benefit, unrelated to the marriage, while the marriage is breaking down. Examples include spending on affairs, gambling losses, or transferring assets to hide them. Avoiding common financial mistakes during divorce can help prevent dissipation issues.

When proven, dissipated assets are treated as still existing for valuation purposes. The dissipating spouse effectively "keeps" those assets in the equalization calculation, meaning the innocent spouse receives more of the remaining property to compensate.

Tax Consequences

Maryland courts value assets at gross fair market value—hypothetical future taxes are generally not deducted. Only immediate, specific tax costs (like taxes on a court-ordered liquidation) are considered under factor (11). Speculative future tax liabilities are ignored.

Practical tip: When negotiating settlement, compare after-tax values. $100,000 in a traditional IRA is worth less than $100,000 in a Roth IRA or taxable account due to future tax liability.

Practical Tips for Maryland Property Division

1. Preserve your tracing evidence: Gather account statements, closing documents, inheritance records, and gift letters to prove nonmarital contributions
2. Document contributions: Both monetary and nonmonetary contributions matter—keep records of your involvement in the family's well-being
3. Understand entireties property: If you used premarital or inherited funds for a home titled in both names, that property is marital—your contribution affects the monetary award, not classification
4. Consider retirement timing: The "if, as, and when" default avoids speculative tax issues; if you want present value, you must request it properly
5. Track post-separation payments: Pay jointly-owned property expenses from a separate, nonmarital account if you want potential Crawford credits
6. Get expert valuations early: Businesses, professional practices, and complex investments require professional appraisal
7. Explore mutual consent divorce: Since 2023, Maryland allows divorce by mutual consent without a waiting period if you can agree on all terms

Estimate Your Maryland Divorce Costs

Property division complexity significantly affects divorce costs. Use our calculator to estimate expenses based on your situation:

Next Steps for Your Maryland Divorce

Understanding Maryland's unique three-step property division process is essential for protecting your financial interests. Key takeaways:

• Maryland uses a three-step process: classify, value, then monetary award
• The source-of-funds method determines classification—not title
• Entireties real property is automatically marital, regardless of funding source
• 11 statutory factors guide the monetary award—no single factor dominates
• Property is valued as of the divorce date, not separation
• Direct tracing is required to prove nonmarital interests
• Courts generally cannot transfer most titled property—they grant monetary awards instead

For official forms and filing information, visit the Maryland Courts Family Division or the Maryland People's Law Library. Given the complexity of Maryland property division, consulting with a family law attorney is strongly recommended for divorces involving significant assets.