When facing a divorce in Illinois, one of the most critical financial issues you’ll encounter is the division of retirement accounts and pension plans. As a Chicago divorce attorney with years of experience, I understand that these matters can be complex and emotionally charged. My role is to guide you through this process, ensuring a fair division of these assets and protecting your future financial security.
Retirement accounts and pensions are often among the most valuable assets that spouses share, and determining how to divide them equitably can be intricate. Illinois law requires marital property to be distributed equitably but not necessarily equally. This distinction means that the court will aim to divide marital assets in a fair manner, considering various factors such as the duration of the marriage, the economic circumstances of each spouse, and contributions to the marital estate, including those of a homemaker.
Understanding Marital Vs. Non-Marital Property
In Illinois, only marital property is subject to division during a divorce. Marital property includes most assets and debts acquired by either spouse during the marriage. This can include real estate, vehicles, and financial accounts. However, retirement accounts and pensions can be particularly complex because they may include contributions made before and during the marriage. The portion of your retirement accounts and pensions accumulated during the marriage is considered marital property and thus divisible upon divorce.
Valuing And Dividing Retirement Accounts
The first step in dividing retirement accounts, such as 401(k)s, IRAs, and other pension plans, is to determine their value. In some cases this may require the assistance of financial experts, especially for pension plans.
Once valued, the division can proceed in one of two ways: either by assigning each spouse a portion of each account or by offsetting one spouse’s share with other marital assets of equal value. For example, one spouse may retain the retirement account while the other receives the family home or other investments that equate to their share of the retirement assets.
Legal Instruments Used In The Division
To divide retirement accounts without incurring taxes or early withdrawal penalties, you will likely need a Qualified Domestic Relations Order (QDRO). A QDRO is a legal order that instructs the plan administrator on how to distribute retirement benefits. Each retirement plan may have its own rules regarding the division and disbursement of funds, so it’s crucial to draft a QDRO that complies with both federal laws and the specific plan’s rules. Qualified Illinois Domestic Relations Orders QILDROs are typically employed in situations where one spouse is employed by the government such as the state, a city, a school, and a police or fire department.
Considerations For Pensions
Pensions are treated similarly to other retirement plans, but they have unique challenges. Since pensions typically pay out benefits during retirement, calculating the present value of future benefits can be complicated. Often, actuaries or other financial experts are employed to provide a fair valuation. Alternatively, the monthly benefit payable now or in the future can be divided equally or in another percentage.
In some cases, if the pension was partially accumulated before the marriage, that portion might be considered non-marital property and thus not subject to division. The marital portion, however, will need to be divided using principles similar to those used for other retirement accounts.
Tax Implications
It’s crucial to consider the tax implications when dividing retirement assets. Early withdrawals, if not done under a QDRO, can lead to significant penalties and taxes. However, a well-structured division plan can help you avoid unnecessary taxes and maximize your financial resources post-divorce. This can provide hope for a stable financial future despite the challenges of divorce.
FAQs About Retirement Division In Illinois Divorces
What Is A Qualified Domestic Relations Order (QDRO)?
A QDRO is a legal decree required to divide certain types of retirement accounts during a divorce. It allows funds to be distributed to a spouse, ex-spouse, child, or other dependent without the typical penalties for early withdrawal or income taxes at the time of transfer.
How Is The Value Of A Retirement Account Determined For Divorce Purposes?
The value is typically determined based on the current balance. However, for pensions or other plans where future payouts are involved, calculations may need to account for the present value of future benefits.
Are All Retirement Accounts Subject To Division In A Divorce?
Only those considered marital property—meaning they were contributed to or accrued value during the marriage—are divisible. Any contributions made prior to the marriage are generally deemed separate property.
Can I Keep My Retirement Account Intact And Give Other Assets To My Spouse?
Yes, this is often done through an asset trade-off where you keep your retirement accounts in exchange for giving up a claim to other marital property of equivalent value.
Contact Our Chicago Divorce Attorney To Discuss Your Case
Navigating the division of retirement accounts and pensions requires careful legal and financial considerations. If you are going through a divorce in Chicago and need assistance with this complex issue, contact our Chicago divorce attorney at (312) 621-5234 to schedule a consultation. Michael C. Craven provides thoughtful guidance and effective representation to protect your interests and secure your financial future.
