Dividing Retirement Investments in Divorce
You have worked very hard for many years to accumulate significant assets which you assumed would fund your retirement. Whether you have a fully-vested pension plan, 401(k), IRA, or other investments accounts, those funds will likely be waiting for you when you retire—unless you get divorced. Retirement investments, like any other asset, may be considered marital property and, therefore, would be subject to division between you and your spouse in the event of divorce. There are several ways in which retirement accounts may be considered in divorce, including one that may require the use of a Qualified Domestic Relations Order, or QDRO.
Dividing or Offsetting
Depending upon when you first began contributing to your retirement funds, all of your investments may not be subject to division. According to the Illinois Marriage and Dissolution of Marriage Act, only the portion that accumulated during your marriage is considered marital property. You might need the help of a financial professional to establish the value of the investment prior to the marriage, so that only the correct portion is considered during the divorce process. Once that has been done, you, your spouse, and the court need to determine how, or even if, the investments will be divided.
If you and your spouse possess other significant assets such as homes, vehicles, or non-retirement savings, you may be able to negotiate a deal in which you keep your entire retirement investment. This could be even more likely if each of you already has a separate pension or 401(k). Instead of complicating matters by splitting benefits that will not be payable for years, you may, for example, be permitted to keep your pension, while your spouse is allocated a larger share of your marital cash holdings.
Using a QRDO
In the event that dividing retirement benefits is necessary, you may have a couple options regarding how to do so. You may be able to split the account immediately, especially if you are working with a 401(k) or similar plan. The portion being allocated to your spouse can be transferred to a new account set up in his or her name, usually without early withdrawal penalties. The transaction is completed quickly, and you and your spouse can go about your lives.
However, not all plans can be divided so easily. Some require the use of a QDRO to instruct the plan administrator on how the benefits are to be divided when they become payable. The QDRO legally creates and recognizes the right of an alternate payee—in this case, your ex-spouse—to receive a portion of another person’s retirement plan. The order may be drafted as part of the divorce judgement, and, when provided to the plan, must be followed by the administrator.
Learn More About QRDOs
If you are considering divorce and have questions about the security of your retirement investments, contact the experienced Kane County family law attorneys at The Law Offices of Douglas B. Warlick & Associates. We will help you understand your options and how the law may be applied in your particular situation. Call 630-232-9700 and get the answers you need.
Sources:
http://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=075000050HPt%2E+V&ActID=2086&ChapterID=59&SeqStart=6100000&SeqEnd=8350000
http://www.dol.gov/ebsa/faqs/faq_qdro.html
http://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=004000050K1-119
