How Are Retirement Accounts Handled During an Illinois Divorce?

 Posted on January 24, 2022 in Divorce

A divorce case will involve a number of different types of financial issues. Depending on the complexity of a couple’s finances and the marital and separate assets they own, determining how to divide marital property can be a complicated process. Retirement accounts are one type of property that may need to be addressed during the divorce process, and couples will need to make sure they understand the issues that may affect how these accounts will be divided. 

Division of 401(k) Accounts, IRAs, and Pensions

Retirement savings accounts may be valuable assets that a person will rely on to provide for their financial needs in the future. When an account in one spouse’s name was created or contributed to during a couple’s marriage, it will usually be considered a marital asset that will need to be addressed during the divorce process. Couples may take a few different approaches when dividing these accounts, such as splitting the funds in an account equally, or allocating a certain percentage of an account to each spouse, or having each spouse keep accounts in their names while ensuring that other assets are divided in a manner that is fair and equitable.

When spouses choose to divide the funds in an account, they will need to follow the correct legal procedures to ensure that they will not be required to pay early withdrawal penalties. For employer-sponsored accounts such as 401Ks, a “Qualified Domestic Relations Order” (“QDRO”) can be prepared, and this “QDRO” will provide instructions to the retirement plan administrator on how funds should be transferred.

For individual retirement accounts (IRAs), a divorce settlement may state that “a transfer incident to divorce” is to occur, and this will allow funds to be withdrawn and allocated to the other party. The spouse who receives funds that were withdrawn from the other spouse’s account can roll the amount over into a retirement account in their own name, and by doing so, taxes will not apply to the amount that was withdrawn.

Spouses may also need to address pension benefits earned by one spouse or by both spouses during their marriage. A spouse may be entitled to receive a percentage of the benefits that are supposed to be paid after the other spouse’s retirement, and this percentage will usually be based on the amount of time the couple was married while the spouse was working in a pension-eligible position. A “QDRO” should be prepared to allocate pension benefits, which will instruct the pension plan administrator to pay the appropriate percentage of the benefits to the person’s ex-spouse.

Contact Our Hillside Property Division Lawyer

Retirement accounts and pensions are just one subject in a property settlement, and couples may also need to address multiple other types of complex financial issues. Law Office of Vincent C. Machroli, P.C. can provide top-quality representation during the divorce process to ensure that you fully understand the best ways to protect your rights and financial interests, and we will help you negotiate a settlement that will meet your needs. Contact our Oak Park asset division attorney at 708-449-7404 to schedule a no-charge consultation and get skilled legal help with your divorce.

Sources:

https://www.investopedia.com/articles/retirement/03/060403.asp

https://www.thebalance.com/how-retirement-plan-assets-are-divided-in-a-divorce-1289260