The Division of Retirement Accounts in Divorce in Illinois
Posted on January 28,2019 in Divorce Finances
Retirement 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
