Retirement Accounts And Divorce
Whether we have been working for 10 years or 40, most of us take time to consider what our lives will be like during retirement. As we envision our ideal retirement lifestyle, a central part of the contemplation involves how we can set aside enough money to reach our goals, usually with an emphasis on retirement accounts and pension plans.
Often, these discussions involve a partner, the person with whom we plan to spend our post-work years. For some people, however, divorce drastically changes their aspirations for the future. Retirement will inevitably look different than what they anticipated, and financial plans must be reset. With help from an Illinois family law attorney you can address pension plans head-on.
For married couples who divorce in Illinois, here’s how legal decisions about retirement plans and divorce could affect your financial position.
Dividing Assets In Divorce
When a couple divorces, the parties must come to agreement about how to divide their assets. If they cannot settle matters on their own or with help from an Illinois family law attorney, which is frequently the case, a family law judge determines what is fair, within the bounds of the law.
When a judge reviews a divorce case, he or she analyzes the list of property claims to determine whether an asset should be designated as marital or non-marital in nature. While some assets clearly fit into one or the other category, retirement savings are not so easily identified.
Examples of Retirement Accounts And Savings Plans
(include but are not limited to):
- Railroad pension
- Roth IRA
- State, city, county, and town retirement plans
- Pension plans
Retirement savings and accounts, including 401(k) plans and pensions, frequently are categorized as both marital and non-marital property in divorce proceedings.
Divorce In Illinois
Illinois law asserts that funds within retirement accounts fall into two buckets — monies accumulated in benefits before the date of the marriage and those accumulated afterward.
The total of funds in a party’s retirement account up until the day before their legal marriage is non-marital property, and belongs only to them. The original owner of the benefits retains sole ownership of that portion of their retirement account if they can prove the benefit by clear and convicting evidence. You may also be entitled to earnings of the non-marital portion.
Whatever funds that were added to the account on the parties’ legal marriage day and thereafter — including deposits by the original party and their employer, along with accrued interest — is marital property and can be divided as such.
Dividing Retirement Accounts
After a family law judge determines what constitutes marital and non-marital property in a divorce proceeding, he or she then starts the task of determining an equitable distribution of ownership over the account funds.
During divorce proceedings, the portion of retirement account funds that is identified as marital property isn’t necessarily divided 50-50. Rather, the family law judge determines a fair distribution of the monies between the two divorcing parties.
A divorcing spouse who lacks his or her own retirement account isn’t automatically entitled to half of their ex-spouse’s retirement account funds. The judge will take into account several factors, including distribution of other assets and whether one spouse was relying on the other’s account to also support them in retirement.
Retirement Accounts Distribution After Divorce
Once a judge determines the allocation of retirement funds and a divorce is settled, the monies must be formally divided. Fortunately, divorcing parties do not need to cash out their retirement account. This can trigger costly fees and taxes, and certain accounts do not permit a withdrawal until retirement.
Instead, the parties can instruct the retirement account plan administrator how to divide the funds into two separate accounts, which they will own independently moving forward. This process is generally completed through a court order called a Qualified Domestic Relations Order (QDRO) but specific types of plans may have other requirements.
The retirement account plan administrator reviews the QDRO to be sure it meets relevant requirements. The judge signs the order and it is executed by the plan administrator.
While many retirement accounts require a QDRO to divide assets, some do not. Other retirement plans, such as those governed by the Illinois Pension Code, require a specialized document called the Qualified Illinois Domestic Relations Order.
The division of retirement funds can become very complicated and you must ensure you complete this process. To understand how divorce could affect your retirement plans, call to speak with one of our Illinois family law attorneys.
Experienced Illinois Family Law Attorneys
If you would like additional information about divorcing and pension plans, contact the Illinois Family Law Attorneys at Sterk Family Law to get started. You can reach our office by calling 815-600-8950 or contact us online to schedule a free consultation.
This article does not constitute individual legal advice and is to not to be construed as such. This article contains general information and constitutes legal advertising.
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