Yes. Contributions made to retirement accounts during the marriage are marital property subject to equitable division. Contributions made before the marriage are generally non-marital. The marital portion is determined by amounts accumulated from the date of marriage to the date of filing.
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Retirement & Investment Accounts in Divorce
Trusted Retirement and Investment Account Division Divorce Attorney In Chicago
One of the key aspects of asset allocation in a divorce case pertains to retirement, deferred compensation, and investment accounts. These accounts can include pension funds, annuity, 401(k), 403(b), SEP, IRA, stocks, bonds, options, ESOPs, brokerage, mutual funds, and notes. Since Illinois implements an equitable allocation of the marital estate, that does not always mean it is an equal division of these accounts. Furthermore, there are oftentimes both non-marital and marital aspects to retirement and investment accounts that can affect their allocation, transferability, tax implications, and valuation no matter whether the account is held individually or jointly. The division of these accounts can be quite complex and require expertise and finesse in drafting the requisite documentation.
Some items that should be considered are that funds typically should not be transferred until the divorce is final, beneficiaries should also be updated and percentages rather than dollar amounts often apply due to the constantly changing values and natures of these accounts. Drafting certain orders or other plan administrator paperwork can also be required, depending on the account and the terms, such as Qualified Domestic Relations Orders for 401(k) and 403(b) accounts. Parties must also consult with their tax professionals to ensure that the transfers or withdrawals do not have a negative impact individually and certain language may need to be included in the marital settlement agreement or judgment for dissolution of marriage to ensure certain tax protections are in place. Because of all of these various components having an experienced family law attorney is crucial. Contact the trusted legal counsel at WARD FAMILY LAW, LLC, today to schedule a consultation.
Frequently Asked Questions
What is a Qualified Domestic Relations Order (QDRO)?
A QDRO is a court order directing a retirement plan administrator to pay a portion of a plan participant's retirement benefits to a former spouse. QDROs are required to divide most employer-sponsored retirement plans without triggering early withdrawal penalties or immediate tax liability.
What is a QILDRO and when is it needed?
A Qualified Illinois Domestic Relations Order (QILDRO) is used specifically for Illinois state and local government employee pension plans. Standard QDRO language cannot be used for state pensions — a QILDRO must be properly drafted and submitted to the specific pension system.
Can I withdraw money from a retirement account during a divorce?
Generally no. Illinois divorce filings trigger automatic temporary restraining orders prohibiting transfer or depletion of marital assets including retirement accounts. Withdrawals without court authorization can result in sanctions and adverse adjustments in property division.
How is the marital portion of a retirement account calculated?
The marital portion is generally the amount contributed from the date of marriage to the filing date. For defined contribution plans this can be calculated from account statements. For defined benefit pension plans actuarial calculations are often needed.
Can I receive a portion of my spouse's pension if it is not yet vested?
Yes. Courts can award a share of unvested pension benefits. The order typically specifies that the non-employee spouse receives their share when and if benefits vest and are paid.
What happens to IRA accounts in an Illinois divorce?
IRA accounts accumulated during the marriage are marital property subject to division. Unlike 401(k)s, IRAs do not require a QDRO — they can be divided through a Transfer Incident to Divorce allowing tax-free transfer to the ex-spouse's own IRA.
What are the tax consequences of dividing retirement accounts in divorce?
When properly executed through a QDRO or Transfer Incident to Divorce there are generally no immediate tax consequences. Once funds are in the recipient's account, normal retirement account tax rules apply.
What if my spouse is hiding retirement account assets?
Retirement accounts must be fully disclosed in the Financial Affidavit. Your attorney can subpoena statements from financial institutions and run credit reports to identify undisclosed accounts. Failure to disclose constitutes fraud on the court.
How long does it take to implement a QDRO after divorce?
After the divorce is finalized and the QDRO is drafted and entered by the court, the plan administrator must review and approve it. This process can take several weeks to several months. Begin the QDRO process early and submit to the plan administrator promptly.
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