How Are Retirement Accounts Divided During a Divorce?

 Posted on August 03, 2023 in Family Law

Divorce can be a complex and challenging process, and some of the most complicated issues that may need to be addressed will be related to the division of assets. Some of the most significant assets that spouses must address during divorce proceedings will be retirement accounts, pensions, and investments. In Illinois, retirement accounts that spouses contributed to during their marriage are considered marital property, which is subject to division during divorce. Understanding how these accounts may be divided is crucial, since it can ensure that spouses will have sufficient financial resources that will allow them to meet their needs in the future.

Types of Retirement Assets

Before delving into the specifics of how retirement accounts are divided in a divorce, it is important to understand the different types of assets that may need to be addressed. These may include:

1. 401(k) plans

   These employer-sponsored plans allow employees to save for their retirement by contributing pre-tax dollars from their paychecks.

2. Individual Retirement Accounts (IRAs)

   These accounts are personal savings vehicles that individuals can contribute to on their own if they meet certain income requirements.

3. Pension plans

   These benefits may be offered by certain types of employers, and they will provide retirees with regular income payments during their post-work years based on factors such as their length of service and salary history.

Illinois Law Regarding Division of Retirement Accounts in Divorce

In Illinois, any property acquired by either spouse after marriage but before a legal separation or a court order dissolving the marriage is considered marital property that is subject to equitable division between both parties. Any funds contributed to retirement accounts or benefits earned by a spouse during the course of the marriage will be considered marital assets. 

Illinois courts follow an "equitable distribution" approach when dividing assets in divorces. This means that assets are not necessarily divided equally, but in a manner that is deemed fair based on multiple factors, including the length of the marriage, each spouse's financial circumstances, contributions each spouse made to the marriage and family, and the future needs of each spouse. When it comes to retirement accounts or pensions, Illinois courts will determine how much of these assets are marital property and how much may be considered separate property. Marital assets may then be divided between spouses along with other property they own.

Qualified Domestic Relations Orders (QDRO)

When dividing retirement assets between divorcing spouses, a Qualified Domestic Relations Order (QDRO) should be used. A QDRO is a legal document that establishes an alternate payee's right to receive specific benefits from a pension plan or 401(k) plan. A QDRO will allow assets held within these accounts to be transferred directly from one spouse's account into the other spouse's individual retirement account or another qualified retirement plan without triggering penalties such as early withdrawal fees. 

A QDRO outlines how funds in a retirement account will be divided between divorcing spouses. It specifies percentages or dollar amounts that each party should receive upon distribution. A QDRO may also be used to divide pension benefits, and it may state that once a person begins receiving these benefits, a certain amount of the payments they receive will be allocated to their former spouse.

Contact Our Naperville Retirement Asset Division Lawyers

Given the complexity of dividing retirement accounts during a divorce, seeking legal guidance from an experienced family law attorney is essential. At Mevorah & Giglio Law Offices, our knowledgeable Lombard property division attorneys can guide you through the process of evaluating your assets and negotiating a fair property settlement. We can ensure that accurate calculations are made when determining what portions of retirement assets are marital property, and we can assist in drafting QDROs to ensure that these assets will be divided correctly. To arrange a free consultation, contact us today at 630-932-9100.