Kane County Retirement Accounts in Divorce Lawyers

Divorce Attorneys to Protect Your IRA, 401(k), SEP, and Pension in St. Charles and Geneva

Retirement accounts can be one of the more confusing parts of the division of property in a divorce. If you have a 401k plan at work, for example, it is in your name and the contributions come out of your salary and from your employer. Thus, you might assume it is a non-marital asset. In fact, any retirement savings and pension benefits acquired during your marriage are marital assets subject to division in a divorce.

At Weiler & Associates, Inc., we understand the importance of protecting the retirement savings you have worked and sacrificed to accumulate over the years. You can rely on us to clearly and carefully explain your legal options for dividing your and your spouse's retirement benefits along with the tax consequences.

As experienced divorce attorneys, we fully understand the necessary legal procedures and financial implications.

For example, it is crucial to differentiate and properly value a retirement account such as a 401k that has been funded with pre-tax contributions, where all withdrawals will be taxed as ordinary income, versus a Roth or other IRA funded with after-tax contributions, where all withdrawals will be tax-free as long as the account has been held for at least five years. There are many complex situations that arise involving retirement accounts in divorce.

Illinois Divorce Law on IRAs, 401k's, and Pensions

Illinois divorce law, 750 ILCS 5/503a, states that property acquired by either spouse prior to the marriage is generally considered non-marital property. Property acquired by either spouse during the marriage is generally considered marital property. The law goes on to state that retirement plans may have both marital and non-marital characteristics.

750 ILCS 5/503b2 states that all retirement benefits accumulated by either spouse during the marriage are presumed to be marital property that must be divided between the spouses in "just proportions" in a divorce settlement. The term "retirement benefits" includes pensions, individual retirement accounts (IRAs), 401k plans, and the like.

For example, suppose you had an IRA or 401k retirement savings account valued at $100,000 prior to your marriage. That would generally be considered your separate, non-marital property. If you continued adding to the account during your marriage, those contributions would be considered marital property. At the time of your divorce, you will need to produce documentation showing what portion of that retirement account was yours prior to the marriage. Otherwise, the entire account could be considered marital property.

The Illinois Legal Process for Splitting Retirement Benefits

If you need to split a 401k account as part of your divorce settlement, the process works like this:

1. Your divorce settlement agreement must specify the manner in which the account is to be divided. For example, the order might state that you are to receive 40% of the total value of your spouse's 401k account as of a specific date.
2. As soon as possible after your divorce decree is final, your attorney must draw up a Qualified Domestic Relations Order (QDRO), which must be approved by the court and by the administrator of the retirement plan. If the account is currently in your spouse's name, your spouse would normally be the only person legally allowed to withdraw or transfer those funds. The QDRO will give you the legal right to withdraw or rollover your allotted portion of the account.
3. Once the QDRO has been approved, you can take legal ownership of those funds. You will probably want to roll over the funds into an IRA account of your own. If you withdraw the funds in cash, you will be subject to a 10% penalty for early withdrawal unless you are over age 59½ and you will also have to pay any income tax due.

The process explained above also applies to similar defined-contribution retirement plans including Roth 403b plans, 457 "deferred compensation" plans, and SEP IRAs-a simplified employee pension plan typically set up by a small business owner with few or no employees.

The process for splitting a pension or defined-benefit plan also requires a QDRO, but the order simply directs the pension plan administrator to pay a portion of the "owner" spouse's pension benefits to the other spouse. No benefits are paid out until the "owner" spouse retires and actually begins receiving benefits.

A QDRO is not required to divide an IRA. The spouse who owns the IRA can simply direct their IRA investment management firm to transfer the allotted funds from their IRA account to a separate IRA account under the recipient spouse's name. There are no tax implications for this type of IRA funds transfer between spouses when required by a divorce judgment.

Distinguished Divorce Lawyers in St. Charles, Illinois

If you are concerned about the best way to divide retirement benefits between you and your spouse, consult the elite divorce attorneys of Weiler & Associates, Inc. Contact us in our St. Charles office at 630-331-9110 for an initial consultation. We serve clients in Kane County including the communities of Batavia, Elgin, Geneva, Pingree Grove, and St. Charles.