QDROs and QILDROs in an Illinois Divorce

 Posted on March 11, 2025 in Asset Division

Dividing retirement benefits in an Illinois divorce is a tricky process, especially when dealing with employer-sponsored retirement accounts. Qualified Domestic Relations Orders (QDROs) and Qualified Illinois Domestic Relations Orders (QILDROs) are important legal tools that are often a part of this process.

However, just because you have retirement accounts does not necessarily mean you will need to use a QDRO or QILDRO. Understanding when and how to use each one is the first step in negotiating a fair division of retirement funds, and our Illinois divorce attorneys are here to help.

When Are QDROs and QILDROs Used?

Divorcing spouses use a QDRO or QILDRO when one spouse is entitled to part of the other spouse’s retirement benefits when they divide their assets during divorce. Without these orders, plan administrators cannot legally give any money to the non-account-owning spouse (also called the "alternate payee").

A QDRO is used to divide private-sector retirement plans governed by the Employee Retirement Income Security Act (ERISA), such as 401(k)s and pensions from private companies. A QILDRO, on the other hand, is for public retirement plans managed by Illinois state law, such as those held by teachers, government workers, and other public servants.

How Are QDRO and QILDRO Payments Sent and Received?

Once a QDRO or QILDRO is approved and processed, payments can be structured in different ways:

• Lump-Sum Distribution: If the plan allows, a receiving spouse may take a lump sum and roll it into an IRA to avoid immediate taxation.

• Periodic Payments: The alternate payee may receive payments over time, either immediately or once the primary account holder begins receiving distributions.

• Survivor Benefits: If properly addressed in the divorce decree, a QDRO or QILDRO can ensure the non-account-owning spouse receives survivor benefits after the account owner’s death.

What If the Primary Account Holder Has Not Retired Yet?

If the spouse who owns the retirement account is still working and has not begun drawing benefits, the non-account-owning spouse may have to wait until the account owner retires to receive payments. However, for some plans, a QDRO allows for an immediate withdrawal or rollover into another retirement account. With QILDROs, Illinois law generally requires the alternate payee to wait until benefits become payable to the plan participant.

Whether and how a retirement account allows for payments before the primary account holder retires should be an important factor in whether the spouses decide to divide the retirement account. Make sure you talk to a good attorney before you agree to do anything with your retirement account.

Tax Considerations for QDRO and QILDRO Distributions

If money from a QDRO is rolled over into another retirement account, the transfer is not typically taxed immediately. If the alternate payee takes a cash distribution, it is subject to income tax. However, it may be possible to avoid the early withdrawal penalty if the funds are received directly from a QDRO.

QILDRO distributions follow Illinois-specific tax laws, which depend on the retirement system in question. Consulting with a Certified Financial Litigator can help ensure the most tax-efficient strategy is used.

Are There Alternatives to QDROs and QILDROs?

Yes. Spouses may negotiate a different asset trade instead of dividing a retirement account. For example, one spouse might keep the entire retirement account while the other receives a larger share of other marital assets, such as the family home or cash savings.

Contact a St. Charles, IL Divorce Attorney for Help With Retirement Division

Dividing retirement assets in divorce can be very complicated, so the process requires careful planning and knowledge of Illinois law. Our Kane County, IL asset division attorneys and our Certified Financial Litigator at Weiler & Associates, Inc. can help you decide whether a QDRO, QILDRO, or asset exchange is the best option based on your financial goals.

We help clients navigate complex property division matters, including dividing their retirement accounts. Contact us at 630-331-9110 to schedule a consultation and talk about your options.