How Are Retirement Accounts Divided in an Illinois Divorce?
There are many assets the courts will divide between a couple during divorce proceedings. Some of the most common include the marital home, a business acquired during the marriage, bank accounts, and vehicles. Retirement accounts are one type of asset that many people do not consider when entering into property division negotiations. However, accounts such as IRAs, 401(k)s, and pensions are subject to division between spouses, just like other marital assets. How they are divided and when the funds are distributed will depend on several different factors.
Retirement Accounts as Marital Property
In Illinois, as in all other states, property is considered to be either marital property or separate property. Separate property is any property either spouse owned prior to the wedding that was brought into the marriage. Marital property, on the other hand, is any property that was acquired during the marriage by one or both spouses.
These same rules apply to retirement accounts. If one spouse had acquired funds in a retirement account prior to the marriage, those funds are considered separate property. However, any funds that went into the account after the marriage are considered marital property, even if only one spouse contributed to the account.
Qualified Domestic Relation Orders
When dividing retirement accounts during an Illinois divorce, a Qualified Domestic Relation Order (more commonly referred to as a QDRO) will be issued. This court order is sent to the administrator of the retirement plan with instructions on how to divide the funds in the account. The administrator typically receives this, along with the order for marital dissolution, once the divorce is final.
Not all retirement accounts require a QDRO. Retirement plans governed by the Illinois Pension Code are divided using a similar order known as a Qualified Illinois Domestic Relations Order, more commonly known as a QILDRO. IRAs can be divided using a “transfer incident to divorce.”
Factors to Consider With Retirement Account Distribution
A QDRO may state that a spouse will receive funds from a retirement account right away, or the funds may be distributed after a spouse’s retirement. When the funds are distributed through a QDRO, neither spouse will be subject to the typical 10 percent penalty that is applied for withdrawing retirement funds early. However, if a spouse receives the funds immediately after the divorce, he or she will be required to pay taxes on this amount, unless the funds are rolled over into his or her own retirement account.
A Rolling Meadows Divorce Lawyer Can Help with Property Division
Property division issues in divorce can become very complex, especially when retirement accounts are involved. Skilled Hoffman Estates asset division attorney Nicholas W. Richardson can provide you with the legal help to make this process easier. He has the experience necessary to help you protect your assets and obtain the fair settlement you deserve. Call us today at 847.873.6741 to schedule your free consultation.