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Property division for 401(k) and retirement assets

Married couples sometimes build assets together as they attempt to reach a common goal of a comfortable retirement. When these couples divorce, they will face the property division process. This process includes splitting accounts like IRAs and 401(k)s. Illinois residents may not be aware of the correct process for dividing these accounts, but without the proper attention, some individuals could face penalties. 

For many couples, retirement funds make up the most significant portion of marital assets. These accounts have various rules and taxes associated with them. During a divorce, if certain procedures are followed, individuals may be able to avoid the tax penalties and fees of early withdrawal. 

For example, a workplace retirement plan like a 401(k) should be split using a Qualified Domestic Relations Order, or QRDO. This order is filed in accordance with the specifications of the divorce decree. Individuals should review the document and ensure that it is drafted correctly and the proper steps are followed. Other accounts like IRAs can be split by filing a copy of the divorce decree and other paperwork with the IRA custodian. Utilizing a trustee-to-trustee transfer method can help eliminate taxable events. 

Property division is an important part of the divorce process. The various types of retirement accounts all have their own rules. An individual will want to be sure that he or she is using the correct methods to transfer the funds or else he or she could face early withdrawal fees and income taxes. In Illinois, one method that people use to help themselves take the right steps during property division is to consult with an experienced family law attorney. 

Source: CNBC, "How to avoid mistakes dividing up 401(k) assets in divorce", Sarah O'Brien, March 7, 2018

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