What Happens to Retirement Accounts During Divorce Proceedings?

Several things can happen to retirement savings during an Illinois divorce. Benefits may remain with one spouse, have marital and non-marital portions, be divided between the spouses, or be considered with other marital property. The result depends on when the benefits were acquired, the type of plan, and the overall property division. 

You may have spent years building your retirement savings, so it is understandable to be concerned about what divorce could mean for them. You may also have questions about an account you started before marriage or a pension you are still earning. 

At Smolka Law Group in Palatine, Illinois, we help clients address retirement assets and other financial issues during a dissolution of marriage. We can review the retirement benefits involved and help you address their division under Illinois law. Contact us now to schedule an initial consultation. 

Your Retirement Savings May Remain With You

Not every retirement asset must be divided between spouses. Illinois generally treats property acquired before marriage as non-marital, subject to exceptions. Retirement plans, however, may have both marital and non-marital characteristics. 

If you participated in a retirement plan before marriage, some benefits may be non-marital. Benefits acquired or participated in after marriage and before the applicable judgment are generally presumed marital. Account statements, employment records, and contribution histories may help establish when the benefits were acquired. 

Your Retirement Account May Have Marital and Non-Marital Portions

A retirement plan can contain both marital and non-marital portions when you build retirement savings before marriage and continue contributing during the marriage. For example, suppose you had $50,000 in a 401(k) when you married.

You continued contributing during a 10-year marriage, and the account grew to $200,000. The entire $200,000 would not automatically be marital property. The court may need to determine which portion is non-marital and which was acquired during the marriage and is presumed marital. 

This is not always as simple as subtracting $50,000 from $200,000. Contributions, investment gains or losses, transfers, and other activity can affect the classification. At Smolka Law Group, we can review your financial records and address the classification of your retirement benefits. 

Your Retirement Benefits May Be Divided Between You and Your Spouse

If some or all of your retirement benefits are marital property, they may be divided during the divorce. However, Illinois does not automatically require each spouse to receive 50% of every retirement account. 

The court divides marital property in "just proportions" based on the circumstances. These include several factors that affect the division of marital property, such as the length of the marriage, each spouse's financial situation and contributions to marital property, the property assigned to each spouse, future opportunities to acquire assets and income, and certain tax consequences. 

How your spouse receives a share also depends on the plan. Many private employer-sponsored plans require a Qualified Domestic Relations Order (QDRO), which can direct the retirement plan to recognize your former spouse's right to receive the share awarded in the divorce. 

A QDRO must follow federal requirements and the plan's rules. At Smolka Law Group, we can review the retirement plan and explain what may be required to divide the benefits. Our family law attorneys can also address these terms in your divorce judgment and the orders needed to carry them out. 

You May Keep a Retirement Account While Other Property Is Divided Differently

You do not necessarily have to divide every marital asset in the same way. Illinois requires dividing the marital estate as a whole in "just proportions." 

For example, you and your spouse may agree that you will keep more of your retirement savings while your spouse receives a larger share of another marital asset. If you cannot agree, the court can decide how to divide the property based on factors required by Illinois law. 

You should also consider that assets with the same stated value may not have the same practical value. Taxes may apply when money is withdrawn from certain retirement accounts, which can affect how they compare with other property. 

Your Former Spouse May Receive Retirement Benefits Now or Later

Dividing retirement benefits does not always mean your former spouse receives money immediately. According to the IRS, a former spouse entitled to part of a retirement plan may receive the share immediately or later, depending on the plan and benefits involved. With a pension, the plan's terms and the order of benefit distribution can affect when payments become available. 

You may also need to address survivor benefits. A QDRO can protect certain survivor rights under a plan covered by the Employee Retirement Income Security Act (ERISA), a federal law governing many private employer-sponsored retirement plans. The available rights depend on the plan and the terms of the order. 

An IRA May Be Transferred to Your Former Spouse

An Individual Retirement Account (IRA) follows different federal rules from plans that use QDROs. All or part of your IRA can be transferred tax-free to your spouse or former spouse when the transfer meets federal requirements related to divorce. 

If you transfer your entire IRA, you can change the account to your spouse's or former spouse's name. If you transfer only part, you can transfer the applicable assets directly to an IRA held by that person. 

Simply withdrawing the money yourself and paying your former spouse is different. The withdrawal is generally taxable to you. If you are under age 59½, the 10% additional tax on early distributions may also apply unless an exception applies. 

An Illinois Public Pension May Require a QILDRO

Illinois public pensions can require a different procedure because government retirement plans generally are not subject to the federal ERISA rules governing QDROs. 

For retirement systems subject to the Illinois Pension Code, a Qualified Illinois Domestic Relations Order (QILDRO) can establish an alternate payee's right to receive all or part of a member's accrued benefits. A QILDRO is different from a federal QDRO. 

Requirements can vary depending on the retirement system. If you or your spouse participates in an Illinois public retirement system, identify the system and its requirements before dividing the pension. 

Contact Our Illinois Divorce Attorneys About Your Retirement Assets

Retirement benefits may remain with one spouse, have marital and non-marital portions, or be divided as part of the marital estate. The type of plan can also determine what steps are required to divide them. 

At Smolka Law Group in Palatine, Illinois, our attorneys represent clients throughout the Greater Chicago Area in divorce and other family law matters. We can review your retirement assets, address marital and non-marital property disputes, and help you meet the legal requirements for dividing retirement benefits. Contact us today to schedule an initial consultation.