Present Day Value Buy-Outs of Retirement Plans in Illinois Divorce
For many couples, retirement accounts, whether 401ks, IRAs or pensions, make up the bulk of their assets. Even if only one spouse contributed to each account during the marriage, the assets are marital property and subject to division in a divorce. If the divorce occurs before the first distribution is made though, how can the accounts be divided without being subject to early withdrawal penalties? A skilled divorce attorney can help you navigate through this process.
Dividing Retirement Accounts
One way to divide retirement accounts is with a qualified domestic relations order, or a QDRO. A QDRO is a special order that requires the retirement plan administrator to either divide the account now, or make distributions to both spouses when they reach retirement age. There are certain requirements the QDRO must contain in order for the plan administrator to make the division, so it is important to meet with an experienced attorney who understands these very specific requirements.
For some couples, dividing the retirement accounts is not an attractive option. No distributions will be made from the accounts until the owner spouse (the person who made contributions to the retirement account) reaches retirement age, which means the non-owner spouse will not have immediate access to these funds. While some people like the security of having a future stream of income, others would rather receive their half of the retirement account immediately. In these instances, the owner spouse will have to buy out the non-owner spouse with assets of an equal value.
Buy-Out and Present Day Valuation for Retirement Accounts
There are a number of reasons spouses may agree to a buy-out when it comes to retirement accounts. If one or both spouses are young, they may feel they have sufficient time to rebuild their retirement portfolio and want the cash now rather than later. The non-owner spouse may want a specific marital asset – for example, the family home – and agreeing to a buy-out of the retirement assets is the only way the marital estate can be divided equally. Or a spouse may have built up a significant retirement portfolio pre-marriage that is not part of the marital estate, and would rather have cash now than an additional distribution stream when they reach retirement age.
Whatever the reason, in order to buy-out the other party, your attorney will first need to determine the present day value of the retirement accounts. This can be tricky, depending on the type of retirement account. In addition, if there were pre- and post-marriage contributions, your attorney must determine the value of these contributions, including any increases on those contributions, separately, since all contributions made prior to marriage are not subject to division.
Once the present day value has been determined, you and your attorney will need to determine whether there is property of equal value that can be used to buy-out the non-owner spouse. Any mix of cash, stocks or other property can be used, so long as each spouse will end up with one-half of the estate (or whatever percentage the spouses have agreed on or dictated by law).
Retirement Account Attorney in Chicago’s Northwest Suburbs
If you live in Palatine or Chicago’s Northwest Suburbs, and you or your spouse own any retirement accounts, you need an experienced divorce attorney to help you determine the best way to divide those assets. The Law Office of Nicholas W. Richardson, P.C., understands the importance of these assets and the varying methods of division. Contact the office today to set up a consultation.