Tag Archives: retirement savings

The Division of Retirement Funds, Pensions, and IRA Accounts After Divorce

DuPage County divorce lawyersMarital property includes all assets obtained during a marriage, whereas non-marital property is everything owned before marriage. For middle-age to older adults, aside from real property, savings are the largest aspect of marital property. A survey by the American Academy of Matrimonial Lawyers found the division of retirement plans and pensions was the second-leading cause of contention in divorce.

Do Retirement Plans and Pensions Get Divided During Divorce?

Retirement accounts, pensions, and IRAs are all considered marital property if they were obtained during the course of the marriage, or if they were contributed to during the marriage. For example, if an IRA started out at $10,000 before the marriage, and it was worth $100,000 after 20 years of marriage, the majority of the assets would be considered marital property and should be divided between the two spouses.

401(k) Accounts

Splitting a 401(k) account can be complicated, and technically comes after divorce. After the marriage has been dissolved, a qualified domestic relations order (QDRO) must be filed, which is not part of the divorce agreement. The QDRO must reflect what was outlined in the divorce agreement. Each retirement account needs its own QDRO, and each QDRO must be reviewed by an attorney.

Pensions

Many employees used to benefit from pensions. Sixty percent of private sector employers had pension plans in the 1980s. Today, that number is just 4 percent. However, many public employees have pensions; the average pension for adults over 65 is just over $9,000 per year, with the average federal pension plan being $22,000 per year. Depending on the type of employment, pensions can be much higher than this, and many people rely almost solely on their pension after retirement. Pensions can be split down the middle, not divided at all in some cases, and divided in other ways as well during divorce.

IRAs

Unlike 401(k)s, IRAs do not require a QDRO. Division of IRAs is decided in the divorce itself. In order to avoid a tax penalty for the spouse whose name is not on the IRA, a new IRA must be set up, or the proceeds of the other spouse’s IRA should be transferred to the other’s existing IRA.

Call a DuPage County Property Division Lawyer

The division of marital property is a complex issue, and all retirement and pension plans should be included and divided equitably. For help, call the skilled Wheaton, IL asset division attorneys of the Andrew Cores Family Law Group today at 630-871-1008 to schedule a free consultation.

Sources:

https://www.cnbc.com/2018/04/16/how-paul-ryans-85000-pension-compares-to-the-average-americans.html

https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm

https://www.cnbc.com/2018/03/07/dividing-401k-assets-in-divorce-can-be-an-expensive-minefield.html

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.

Sources:

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

Dividing Retirement Benefits in Divorce

retirement, Wheaton divorce attorneyMost people do not think about retirement benefits or accounts until they need to do so. Young people and couples may briefly mention such things in a prenuptial agreement or other type of discussion before or during their marriage, but too often, retirement is just something to think about in the future. The exception to that rule is during a divorce, as retirement savings and benefits are some of the most commonly disputed assets between spouses. It is extremely important that you understand what you are entitled to receive, if anything at all.

401(k) Accounts

If you have been at the same job for an extended period of time, there is a good chance you are enrolled in either a 401(k) account or an IRA (Individual Retirement Account). Such accounts are generally held to be marital assets (even if they only have one name on them) because, in most cases, they are either acquired or appreciate in value during the marriage. Dividing these accounts during a divorce can be somewhat complex because the rules differ significantly between states. 401(k)s, however, are governed by federal law—the Employee Retirement Income Security Act, or ERISA. Thus, the same procedure applies everywhere.

By law, if you are married, your spouse is the beneficiary of your 401(k), and to remove them as such is not easy, even after a divorce. Generally, you need your spouse’s consent to remove him or her as your beneficiary, and a divorce could complicate matters. If you determine, or if a court holds that your 401(k) is a divisible marital asset, it must be divided equitably between you and your spouse. Spouses are not guaranteed an equal share, but it is reasonable that each of you will need retirement savings for later in life.

IRAs

Compared to 401(k)s, changing an IRA is much easier and less labyrinthine, as they are not governed by ERISA. IRAs do not have an automatic beneficiary, and as such, will not go to any particular person unless you specify your preference. If you were to die without naming a beneficiary, your IRA proceeds will go to your estate.

Keep in mind that in Illinois, only the marital portion of your IRA can be divided during a divorce. The amount you contributed, if any, to the account before your marriage is considered separate property and not part of the marital estate. The IRA is marital property, but part of its value may not be. Also, proceeds from an IRA can be collected tax-free, while 401(k)s and other retirement accounts are usually subject to taxation. This can be very relevant when disputing how to divide accounts. Courts will usually look to avoid awarding a spouse a share of a retirement account only to have most of the funds go toward applicable taxes.

Need Help Dividing Your Retirement Accounts?

Even in an amicable divorce, there can be confusion and discussion about how best to apportion retirement accounts, because the stakes are so high. If you and your spouse cannot agree, or if you have questions, our passionate DuPage County divorce attorneys can try to help. Call any of our offices today to set up an initial appointment.

 

Source:

https://www.dol.gov/general/topic/health-plans/erisa