How Are Retirement Accounts and Pensions Addressed During Divorce?

 Posted on November 19, 2020 in Division of Assets

Getting a divorce involves dealing with many different types of legal and financial concerns. While you may be primarily focused on matters such as the custody of your children or the ownership of your property, you will need to understand how your divorce will affect your financial future. If you have begun saving for retirement, understanding what will happen to these savings will be crucial for ensuring that you can maintain financial stability later in life. An experienced divorce attorney can help you determine how to divide retirement accounts and pension benefits with your spouse.

Division of Retirement Plans and Pensions

During your divorce, you and your spouse will need to divide all of your marital property. This includes most of the assets that you acquired, either together or separately, during your marriage, as well as your marital debts. While Illinois law does not require assets to be divided equally between the two of you, it does state that your property should be divided in a fair and equitable manner. 

Either you or your spouse may own one or more retirement accounts, such as 401(k)s or IRAs, and these accounts may contain funds that you have deposited or had withheld from your income, as well as contributions from your employer matching a percentage of the amount you have saved. All funds contributed to these accounts during your marriage will typically be considered marital property, and during divorce, they can be split between you and your spouse, or you may make other arrangements, such as one spouse keeping the majority of a retirement account’s funds and the other spouse maintaining ownership of the family home.

Because the funds in these accounts are meant to be used to provide for a person’s needs after they have retired, withdrawing money before reaching retirement age will usually result in penalties, and taxes will also apply to the amount withdrawn. When transferring funds from a retirement account during your divorce, you can use a Qualified Domestic Relations Order (QDRO). This order will be sent to the retirement plan administrator, and it will allow funds to be withdrawn without applying any penalties. If the spouse receiving the funds rolls the amount over into their own retirement account, no taxes will apply.

Pension benefits earned by a spouse can also be considered marital property. However, dividing these assets can be more complicated. After retirement, a pension plan will usually provide the recipient with ongoing pension benefits based on the number of years they worked and the income they earned at the time of retirement. When getting divorced, retirement may still be years or decades in the future, so it can be difficult to predict the amount of future pension benefits. In many cases, a person will be able to receive a certain percentage of their ex-spouse’s pension benefits, based on how long the pension plan holder was married while earning these benefits. In these cases, a QDRO can be used to specify the percentage of benefits that a pension plan administrator should pay to a recipient’s ex-spouse.

Contact Our DuPage County QDRO Lawyers

At Calabrese Associates, P.C., we can help you understand the best ways to address retirement benefits and other types of marital property. We will work with you to negotiate a divorce settlement that will protect your financial interests, and we will advocate on your behalf throughout the divorce process. Arrange a consultation with our Naperville property division attorneys today by calling 630-393-3111.

Sources:

https://www.thebalance.com/what-s-a-qdro-2894206

https://www.forbes.com/sites/jefflanders/2012/06/13/how-divorcing-women-should-handle-retirement-accounts-and-pension-plans/