Tag Archives: retirement accounts in divorce

Challenges of Dividing Retirement Accounts in Divorce

Division of marital assets lawyerThe division of marital assets is one of the more complicated aspects of divorce, and retirement accounts present a number of unique issues that can make creating a fair settlement difficult. Since retirement accounts, especially 401(k)s, are accumulated through the individual efforts of one spouse, learning that this asset may be subject to division in a divorce is hard for many to accept. However, any amount in a retirement account classified as a marital asset must be divided, unless the spouses agree otherwise.

Valuing an account and determining how to structure a settlement are complicated matters that do not always have easy answers. Often, a spouse is forced to choose between the pros and cons of short- and long-term options when dividing retirement accounts, and working with an experienced divorce attorney is necessary to receive a complete picture of the implications of any decision. Retirement accounts are often a couple’s most valuable asset, so taking the time to assess how to approach this issue is one of the more critical aspects of a divorce case.

Classifying a Marital Asset

In Illinois, anything accumulated by either spouse during a marriage is considered a marital asset. Thus, for retirement accounts, funds contributed or earned before the marriage would be considered a non-marital asset and exempt from division. Any amount contributed to the account or generated during the marriage would be divided, meaning some percentage of a preexisting retirement account would be part of the divorce settlement. Because the value of retirement accounts can vary greatly from year to year, working with a financial expert to determine what the present and future value of this asset should be is key to working out an appropriate settlement. Assessments can differ, so working with a skilled attorney to negotiate an agreed upon amount is important to resolving this issue.

Unique Issues for Retirement Accounts

Because of the laws regulating the distribution of retirement accounts, simply agreeing on allocation in a divorce settlement is not enough to require a plan administrator to follow the distribution plan. To divide retirement accounts, an additional order must be entered, a Qualified Domestic Relations Order (QDRO), which is signed by the judge and instructs the plan administrator to divide the account as intended. Most retirement accounts require this additional step, outside of IRAs, and significant tax consequences result if this step is not followed, including a penalty for early distribution. In fact, present and future tax treatment should be a big part of deciding when to execute the distribution to the former, as well as whether taking other assets in lieu of retirement funds would be a better alternative. Again, values of retirement accounts can fluctuate widely, so the amount ordered in the settlement and amount available at distribution may not match. Determining how to divide this type of asset should be thoroughly discussed with an experienced divorce attorney.

Call a Wheaton, IL Divorce Attorney

You need financial security to weather the changes of divorce, and retirement accounts are often the most accessible asset to provide that stability. If you have questions about dividing your assets, talk to the knowledgeable DuPage County divorce attorneys at the Andrew Cores Family Law Group. Our dedication and attention to detail will help you get the settlement you need to move on with your life. Contact us at 630-871-1002 for a free consultation.




The Division of Retirement Accounts in Divorce in Illinois

Marital Property Division LawyerRetirement accounts and pension plans are important issues in Illinois divorce proceedings. In some cases, they are the most valuable asset acquired during a marriage. Even though one spouse may hold the pension, IRA, 401(k), or another retirement fund, this account typically qualifies as marital property.

Marital property is anything acquired during the duration of the marriage, as opposed to non-marital property, which accumulated before the commencement of the union and is not a part of the marital estate. All or part of a retirement account is usually included as marital property and is subject to property division.

Retirement Savings as Marital Assets

Account terminology depends entirely on the type held by the spouse. If the account was an employer-sponsored retirement plan, it likely is a 401(k) or pension plan. Typically, the verbiage used for the division is known as a Qualified Domestic Relations Order, or QDRO (pronounced as “quad row” or “cue drow”). If, however, you or your spouse had an Individual Retirement Account (IRA), a transfer incident to divorce would be the correct terminology.

What is a QDRO?

A Qualified Domestic Relations Order recognizes joint ownership and details the division of the retirement account. A QDRO is required to divide most retirement accounts. QDROs apply to plans that are IRS tax-qualified and covered by the Employee Retirement Income Security Act (ERISA). QDROs are non-applicable to military or government pensions, which are governed by their own set of regulations. In addition to the division of the retirement plan asset, a QDRO may also specify the payment of spousal maintenance and child support to an alternate payee.

Taxes on Retirement Accounts

If a divorcing couple fails to adequately plan for and execute the proper sequence of steps necessary for the division of a retirement plan, they may face high tax assessments to their retirement savings. To avoid wiping out a large part of assets:

  • Do not transfer funds until the finalization of the divorce;
  • Update the beneficiary during the split;
  • Divide the assets into percentages rather than dollar values; and
  • The divorce decree must specifically address the retirement plan’s division.

Ask a Wheaton, IL Divorce Attorney

Whether you are contemplating divorce or are currently in the middle of property division negotiations, it is vital to retain the services of a DuPage County retirement account divorce attorney. The delicate nature of varying retirement plans requires experienced representation to avoid hefty penalties and ensure proper distribution. The attorneys at Andrew Cores Family Law Group understand the importance of the retirement plan and will protect your investment. Call our office today to schedule your free initial consultation at 630-871-1002.



Dividing Retirement Accounts in Divorce

Illinois divorce attorney, Illinois family lawyer, Illinois divorce statutes, In some cases, the division of the couple’s financial assets in a divorce can extend to accounts that a person may consider to be a personal benefit, such as a retirement account. Under Illinois law, a divorcing spouse may be entitled to part of their spouse’s retirement account in some cases. Just as there are rules and guidelines as to the division of marital property, there are rules and guidelines when it comes to the division of retirement accounts.

The Illinois law on the dissolution of marriages holds that pension benefits and other retirement plans that were acquired after a marriage and before a legal dissolution or declaration of invalidity of the marriage are marital property. As such, retirement benefits are divided under the same rules as other marital property between the parties, regardless of which party worked and had the retirement payments deducted from their pay. The determination of the value of a retirement account or pension benefits is done according to the Illinois Pension Code, which recognizes this qualification of pension benefits as marital property.

Unlike most other marital property that may have distinct marital property characteristics, as it was acquired after the marriage began, there are special considerations as to retirement accounts because the total retirement account may be made up of funds that were contributed before the marriage began. This does not restrict a retirement account or pension benefits from being considered marital property. However, typically the only retirement funds that would be considered divisible as marital property are those that were contributed after the marriage.

People who are awarded portions of retirement benefits may wait until the spouse who was initially to receive payments begins to draw retirement to collect their portion. However, in some cases, a spouse can decide that instead of waiting until retirement, he or she would like to receive a portion of the retirement accounts in the present time, as part of the divorce settlement. This kind of settlement may be possible, although the spouse electing to do this may face tax penalties unless certain exceptions apply.

As with other aspects of divorce and custody, settlements between the parties are possible, where one person may choose to give up marital property in another form in order to avoid having their retirement account divided. In deciding to make this or any other financial settlement in a divorce, it is important to consult with your attorney to ensure that the settlement is both enforceable, and also beneficial to you.

Contact an Experienced Family Law Attorney

If you are considering divorce and would like to find out how the divorce may affect your retirement accounts, reach out to our skilled DuPage County family law attorneys for help with your case.