What Happens to Retirement Accounts in Divorce?

retirement funds in divorce in illinois

Throughout a lifetime, most people will possess a few major assets — things like their home, vacation property, a retirement account, and investments such as stocks and bonds.

When people get divorced, they often feel upset that these items that took a lifetime to accumulate must now be divided with their ex-spouse. Especially in the case of pensions, 401k accounts and other investments that took time to build, people often feel surprised and resentful that a family court judge has the power to “give” a portion of their earnings to their ex-spouse. 

However, it is true that in general retirement accounts and investments accumulated during the marriage are considered mutual assets of a married couple, in most cases. As people take advantage of numerous types of retirement plans and investment accounts, the issue can be a complex one to explore during divorce proceedings. It’s important to understand your rights and the law related to this aspect of separation and divorce. 

Why do I have to share my retirement funds with my ex-spouse?

Sometimes the law can be difficult to accept, especially when we feel it’s unfair in our particular situation. However, laws are written not to appease any one particular party, but to apply evenly to everyone. Family court judges have some discretion in their allocation of assets during divorce proceedings, but their judgments must be based on law.

The law in Illinois as it relates to dissolution of marriage views investments and retirement accounts through the same lens as any other assets in question, including homes, cars and bank accounts. The law places all these items into two categories: marital property and non-marital property.

Broadly speaking, any assets gained during the term of a legal marriage are considered marital property, meaning they are owned equally by both parties. Consequently, they can be divided  in divorce proceedings. Unless evidence provided to a family court judge convinces him or her otherwise, equal division is the most likely outcome of retirement assets..

How are retirement accounts divided in divorce?

A variety of retirement  plans exist in the working world, including defined benefits plans generally called a pension and defined contribution plans which specify a dollar amount available upon retirement.  In many cases both spouses possess retirement accounts, and sometimes more than one. The manner in which retirement funds are allocated in divorce depends on the types of accounts held by the spouses. 

A  defined benefit plan commonly known as pension plan is a “defined” or guaranteed amount of money, also known as a benefit, which you will receive when you retire.  Generally these are paid out over time in periodic payments and same are not tied in general based on underlying investments but rather on a certain calculation.  A defined benefit retirement interest as to that portion accumulated during your marriage will be divided by a Court through  a Qualified Domestic Relations Order which provides to the other spouse 50% of the benefit accumulated during the marriage.  If a recipient is already receiving these benefits, the Court is bound by the terms agreed to prior to the commencement of the benefits by the employee.  Further, if a spouse is assigned 50% of the marital portion, the plan rules may require that the fund pay out those benefits over the life of the recipient.  These are complicated rules that should be discussed with your attorney.

A defined contribution plan is a type of retirement plan that provides for an individual account for each participant.  The participant’s benefits are based solely on the amount contributed to the participant’s account and any income, expenses, gains or losses, and any forfeitures of accounts of other participants may be allocated to such account.  Generally, the Court will divide those benefits accumulated during the course of the marriage subject to gains and losses.  These funds are transferrable once a Qualified Domestic Relations Order is entered into an account of the spouse who is award said funds.  Determining the marital portion in a divorce can be complex and you need to review this issue with your attorney in detail. 

Experts such as actuaries can be hired to assist in determining the values of retirement benefits.  A careful review of both spouses’ retirement funds is necessary in every case. 

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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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