Tag Archives: retirement

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

Challenges Unique to Gray Divorce

gray divorce, DuPage County divorce lawyersIt used to be that once a marriage had passed a certain benchmark of years, it was considered basically safe from the possibility of divorce. However, in this day and age, numerous social and anthropological factors have combined to make divorce much more of a reality for those over 50. While the reality of divorce itself is much more common nowadays, it is not necessarily the same process for seniors as it is for those in their 20s and 30s. If you are planning to divorce later in life, especially after retirement, there are considerations you must take into account.

Social Security Questions

It is reasonable for one to assume that Social Security benefits would be divisible, as is most other property, in a divorce. This is not actually the case; courts may not divide Social Security income or benefits, because they are considered non-marital property. However, the Social Security Administration does permit spouses (or ex-spouses, in some cases) to qualify for direct benefits based on their spouse’s work history. The criteria for receiving your own benefits based on your ex-spouse’s work history are:

  • If you were married for 10 or more years;
  • If you are presently unmarried (your spouse may be remarried);
  • If you are aged 62 or older;
  • If your spouse is/was eligible for either Social Security retirement or disability benefits; and
  • If the amount you would earn from your own work history would be less than what you would earn from your spouse’s.

This option can alleviate many issues in gray divorce. If a divorced spouse can still claim SSI benefits, they may be less inclined to fight for other assets or to argue against a certain property division concern.

Estate Planning and Retirement Accounts

The other major issue that most younger couples do not have to confront is that of estate planning. Illinois has a law that automatically revokes any provisions in your will that grant bequests to a former spouse upon a divorce becoming final. If you wish to retain them, your will must be revised and updated.

Retirement accounts may qualify as marital property in Illinois, and usually do, meaning that their proceeds will be divided in most divorces. However, they can also touch estate planning concerns, because in a gray divorce, both spouses are usually approaching the end of their careers, so retirement funds become more important. Also, some retirement accounts and insurance policies that specify beneficiaries may not be challenged by law. In other words, if you wish to change the beneficiary on an insurance policy or retirement account after a divorce, you must do so manually, as it will not be done for you.

Do Not Go It Alone

If you are in the position where divorce is imminent, an experienced gray divorce attorney can significantly ease the burden. The dedicated Wheaton divorce attorneys at our law firm are experienced in negotiating the unique issues that can appear in a gray divorce. We are happy to help you through what can be a difficult process. Contact our office today to discuss your options.

 

Sources:

https://www.ssa.gov/planners/retire/divspouse.html

http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2104&ChapterID=60

Don’t Let Divorce Hurt Your Retirement

Illinois divorce attorney, Illinois family lawyer, marital estate, divorce laws,A recent study by the ING U.S. Retirement Research Institute looked at the effect divorce has on individuals feeling financially prepared for retirement. The negative effects are, in part, due to mistakes people make while still married and subsequently during a divorce that may have an effect on their retirement funds, especially for women.

The study found that only 45 percent of divorced individuals felt prepared for their retirement compared to 54 percent of married persons. It also found that those who were married (or living as married) independently saved $40,000 more on average for their retirement compared to singles.

The disparity is even greater for women. Women who were divorced had $34,000 less in total retirement savings than men. This is especially troubling considering women on average live longer than men.

Preparing for Retirement

What does this mean? It means individuals must take two careful approaches when preparing for retirement. First, regardless of marital status, you must make a full commitment to saving for retirement and develop a plan that is in line with your needs and goals. Proactively meet with a financial advisor and focus on what you need to do in order to live comfortably 50 to 60 years later.

The second approach is where an experienced divorce lawyer will be helpful. During the process of a divorce, it is imperative you make the right decisions so as to minimize damage to your retirement assets. Importantly, be careful in selecting which financial assets you choose in the divorce. While it may seem tempting to keep the house, it must be carefully weighed against the possibility of keeping the retirement funds. Those funds will appreciate in value and will finance your retirement in a steadier manner than a house. A house can lead to unexpected and all-consuming expenses.

If you chose the retirement funds, you do not have to roll your soon-to-be ex’s retirement account into an IRA right away. Instead, the law allows for a one-time chance for divorcing partners under the age of 59.5 years old to withdraw money from their ex-spouse’s 401(k) without having to pay the standard tax penalty. As many divorcing parties have to use their retirement funds to pay for divorce expenses, a withdrawal may save more money than rolling the ex’s account directly into an IRA.

Make Sure to Contact an Attorney

Divorce is a stressful and complicated process without the added worry of whether you will face a savings shortfall once you are retired. An experienced divorce attorney can walk you through the process and ensure you make the right decisions during the divorce proceedings. Contact a skilled DuPage County divorce lawyer today.