How Are Different Retirement Accounts Divided in an Illinois Divorce?

 Posted on August 06,2020 in Illinois Divorce

When you make the decision to get a divorce, the financial implications can be just as important as the emotional implications, especially when it comes to your retirement savings. Contributions to a retirement account during your marriage are almost always considered marital property and are therefore subject to division between you and your spouse if you choose to end your marriage. With this in mind, you need to prepare for the possibility that your personal retirement assets will decrease and understand how to properly divide your accounts to avoid excessive tax penalties.

3 Common Types of Retirement Accounts in a Divorce

In an Illinois divorce, 401k accounts, Roth IRAs, and pensions are all considered in the division of assets, but each type of account involves its own unique considerations to ensure the distribution is handled properly.

1. A 401k is funded by pre-tax contributions from you and your employer, so any withdrawals are taxed as income, and withdrawals before the age of 59½  are subject to a 10 percent penalty. If your divorce settlement requires you to give part of your 401k to your spouse, you should avoid making a withdrawal to do so. Instead, you should work with an experienced divorce attorney to obtain a Qualified Domestic Relations Order (QDRO) that allows your spouse to transfer the funds tax-free to his or her own IRA or another qualified retirement plan.

2. An IRA can be divided during a divorce without a QDRO by transferring the funds tax-free from one spouse’s IRA to the other’s, as long as this transfer is noted in the divorce agreement. If the transfer is not clearly detailed in the agreement, it could be subject to income tax and an early withdrawal penalty.

3. A pension may also be divided between spouses as part of the divorce settlement, but unlike a 401k or IRA for which the funds can be transferred at the time of divorce, a spouse awarded part of the pension in the divorce will only start receiving payments upon the retirement of the spouse who owns the account. The division of a pension also requires that you obtain a Qualified Illinois Domestic Relations Order (QILDRO).

It is important to note that funds contributed to any retirement account before your marriage may be considered non-marital assets that will not be divided, so you should keep detailed records of the history of your accounts to protect your savings as much as possible.

Contact a St. Charles Divorce Lawyer Today

When you have decided that your best option is to end your marriage, you should not have to worry that it will threaten your ability to retire. An experienced divorce attorney can help you take stock of all of your retirement savings, plan for the impact your divorce will have on them, and minimize your losses in any transfers required in your divorce agreement. Call a skilled Kane County divorce attorney from Weiler & Associates, Inc. today at 630-331-9110 to schedule your private consultation and make sure your future is in good hands.

Sources:
https://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm
https://www.investopedia.com/articles/retirement/03/060403.asp#:~:text=IRAs%20are%20divided%20using%20a,types%20of%20divisions%20as%20QDROs.
https://www.pensionrights.org/publications/fact-sheet/pension-rights-after-divorce#:~:text=If%20a%20pension%20is%20divided,called%20a%20domestic%20relations%20order.