Like other assets, Illinois courts may consider a person’s retirement savings to be marital property.
In a divorce, this means that the judge will divide a retirement account according to Illinois’ laws, which require a court to divide the property of a divorcing couple fairly if not perfectly equally.
This rule holds true if a person was using a conventional bank account or other financial product to save for retirement. It also holds true for designated retirement accounts like a 401(k) or an IRA.
If a Springfield resident is earning a pension, then the pension may be divided. Doing so may require some involved financial accounting in order to estimate the lump sum value of the pension.
Not all retirement accounts are considered marital property in Illinois. For example, a person may be able to keep whatever she earned prior to the marriage or after the couple split. However, whose paycheck actually went to fund a retirement plan will not necessarily affect property division.
Dividing a retirement account in a divorce can be complicated
Many Springfield residents have a lot of wealth invested in their retirement accounts, and the thought of losing a significant portion of retirement savings in a divorce can be scary.
A person will want to understand his legal options with respect to his retirement accounts. For example, it may make sense during a divorce to negotiate so that he gets to keep his account. However, negotiating could mean having to agree to trade other property to his spouse.
If it makes sense to agree to divide the account, then the couple may have to complete what is called a qualified domestic relations order, or QDRO. For example, a couple will have to complete a QDRO to divide a tax-protected retirement account, for example a 401(k) or an IRA.
The QDRO is an order which the family law judge will sign. The parties will then have to submit it to the manager of the retirement plan. If the manager determines the QDRO is correct, it will divide the plan according to the exact instructions on the QDRO.
There should be no negative tax consequences to this process, but the spouses should be aware that the division of the plan might not take place until a future date.