5 Facts About Retirement Funds and Divorce

Retirement Funds and Divorce

No one plans for divorce, so it’s common for people to not understand how it could affect ownership of their home, automobile and financial assets.

Many people don’t understand how their retirement funds may be divided during a divorce proceeding. It can come as a shock to discover their ex-spouse has any claim to their retirement savings.

Can My Retirement Funds be Divided During Divorce?

During divorce proceedings, all types of assets are evaluated for division and distribution. Whether you have a defined benefit plan or a defined contribution plan, the divorce judge will decide what portion is considered marital for proportion by the court.

Defined Benefit Plan vs Defined Contribution Plan

A defined benefit plan is typically a pension plan that guarantees payout of a specified monthly benefit after a person retires.

A defined contribution plan is one where a person contributes a certain amount of money and can withdraw the total — an unspecified, not-guaranteed amount — upon retirement, similar to a 401(k) or a 403(b).

Interested in learning more on this topic? Read ‘How Retirement Plans Get Divided During a Divorce.

Retirement Funds and Divorce

Retirement funds are not automatically divided 50-50 during a divorce process; however, it is typical that retirement funds are equally divided. A judge makes the ultimate decision, absent an agreement by the parties, to divide marital retirement in just proportions. 

Many people think, “It’s my money; I contributed to it. I should get it all.” This could be true but you must consider the fact that your spouse may have been a stay-at-home parent and cared for the house and the children while you worked. The law says that all income earned during the marriage is presumed to be marital.  If some of the income earned during the marriage was contributed into a retirement fund, then each party has a right to a portion of the retirement funds accumulated.

Can I Keep Retirement Savings I Earned Before I got Married?

For people who have a defined benefits plan, similar to a pension plan, we use something called the Hunt Formula “In re Marriage of Hunt, 78 Ill. App. 3d 653 (Ill. App. Ct. 1979), to determine the marital and non-marital portion what portion of the pension plan.  Essentially, the Hunt Formula calculates marital portion of the plan, in order to value and divide it appropriately. 

We use the Hunt Formula to determine the marital portion based on the number of months the parties were married and the number of months the participant participated in the plan. From there, the judge will decide how that marital portion should be divided between the two parties.

If you have a defined contribution plan, it’s much more difficult to calculate how much of that 401k or 403b is marital and how much is non-marital. The value of the plan fluctuates with gains and losses over time. In order to separate out the marital and non-marital portion, you would have to prove what the value was throughout the entirety of the marriage.

What Portion of my Retirement Funds are Non-Marital Assets?

When marital and non-marital funds become mixed in a defined contribution plan you can’t really take it out. There were interest gains and market losses on the original contribution, and those become commingled with new contributions, losing the original identify of the funds.

If you wanted to prove that a portion of your retirement fund  is non-marital, the only way to actually prove the non-marital portion is to have every single statement from the beginning of the marriage. Using this would determine your rate of return each quarter, on the original amount that was in the plan as of the date of marriage.

Most people don’t have the ability to go back and get 15 years of statements. Some investment companies can only go back seven years. In some circumstances the funds may have changed hands from one company to another, in which case you’re losing all those records in the transfer.

If someone has all the statements, an actuary can be consulted to value the non-marital portion to overcome the burden of proof in court. Although this has been done, it is rare because most individuals cannot obtain the necessary documents in order to do so. 

Can I Protect my Pre-Marriage Retirement Funds From Division in a Divorce?

If you really want to protect your retirement funds before you get married, the best way is to keep your original assets separate and apart from any assets earned during the marriage. Otherwise, save each and every statement for your account, to be able to provide proof of the interest and losses back to the date of marriage.  Alternatively, discontinue any further contributions into that particular plan and start a new plan upon marriage, which would maintain the identity of both your marital and non-marital funds.  Despite efforts to protect and prove your non-marital funds, the Judge makes the final decision relative to the proportion of the assets. 

Contact Our Experienced Divorce Attorneys

Retirement funds and other financial matters present complex issues during divorce proceedings. The knowledgeable and caring staff at Sterk Family Law Group can help guide you through the process. Contact us with questions or to set up a meeting.

To the extent possible, we will offer remote consultations and provide services from a distance.

You may complete the form below, message us here, email our office at info@sterkfamilylaw.com, or call 815-600-8950 and one of our team members will be able to assist you.

This is a legal advertisement from Sterk Family Law Group. It does not constitute legal advice and should not be construed as such. This article is for informational and educational purposes only.


This is a legal advertisement from Sterk Family Law Group. It does not constitute legal advice and should not be construed as such. This article is for informational and educational purposes only.

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