How are Retirement Accounts Divided in a Divorce?

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How are Retirement Accounts Divided in a Divorce?

If you are getting ready for a divorce, it is important to know that any retirement accounts that you or your spouse have, even if they are in your individual names alone, may be subject to distribution as part of your divorce case. In many ways, retirement benefits are handled like other assets in a divorce case, but there are some specific issues that you should know about when it comes to distributing these assets under Illinois law and federal law. One of our Illinois property division attorneys can provide you with more information.

Retirement Accounts and Equitable Distribution

In general, you should expect that your retirement accounts will be handled like any other property in your divorce case in terms of needing to classify these assets as marital or separate property, and then determining what an equitable distribution between the spouses looks like, which is required under the Illinois Marriage and Dissolution of Marriage Act (IMDMA). Any retirement assets acquired prior to the date of marriage will typically be classified as separate property and will not be divided in the divorce, while retirement benefits accrued during the marriage will be classified as marital property and will be subject to division. 

In some cases, a premarital agreement will say that retirement benefits are specifically excluded from property division in the event of a divorce. If the agreement is enforceable, then retirement benefits will not need to be distributed between the parties, even if they would be classified as marital property.

Handling Commingled Retirement Accounts

Sometimes retirement accounts are commingled, meaning that they have qualities of both separate property and marital property. This often happens when one of the spouses opens the account prior to the date of marriage and continues contributing to it after the date of the marriage or when years worked toward pension benefits began prior to the date of the marriage. In these circumstances, the court will usually trace out amounts to determine what portion is separate and which is marital.

Avoiding Early Withdrawal Penalties through QDROs and QILDROs

Most retirement benefits must be distributed differently from other types of marital assets. More specifically, money held in 401(k) accounts, 403(b) accounts, and other types of retirement accounts will incur a penalty for early withdrawal. To avoid the penalty, these assets can be distributed with a Qualified Domestic Relations Order (QDRO). Some pensions must be divided with a QDRO, or if they are associated with the State Employees Retirement System, then through a Qualified Illinois Domestic Relations Order (QILDRO). The distribution of assets held in IRAs will usually need to be handled by the account manager, including for both traditional IRAs and Roth IRAs.

Contact an Illinois Property Division Lawyer Today

Dividing marital property in a divorce can be difficult and complicated, but an experienced Illinois property division attorney can help you. Do not hesitate to get in touch with our firm to find out more about property division in a divorce and some of the specific issues that are likely to arise in the distribution of retirement accounts and pensions. Contact Reifman Law Offices for more information about the equitable distribution of marital property and how our firm can help.  

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