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How Are Retirement Plans Divided in an Illinois Divorce?

Posted on in Property Division

DuPage County asset division attorney

Asset division during divorce involves much more than simply splitting a couple’s bank accounts. Complex assets, such as stocks and retirement funds, must also be accounted for. If you are considering getting a divorce in Illinois, you may have concerns about how your combined property will be divided between you and your spouse. You may also be unsure of which assets your spouse is entitled to and which assets are yours alone. Retirement account assets may be the result of years, if not decades, of hard work so they are often a significant portion of the marital estate. Understanding how these assets are divided during divorce is essential to ensure a fair settlement of the marital estate.

Classifying Retirement Assets as Marital or Separate

Illinois is an “equitable distribution” state, which means that property is distributed in an equitable, but not always even, manner during a divorce. Property division is based on many factors, including each spouse’s financial circumstances, their contributions to the acquisition of property, child custody arrangements, and much more. Only marital property is divided during an Illinois divorce. Marital property includes any assets that were acquired during the marriage. Nonmarital, or separate property, includes property acquired through inheritance or gift as well as property obtained by either spouse before the marriage. Retirement funds that a spouse accumulated before getting married are classified as nonmarital, and therefore, not subject to division. However, the portion of the retirement assets that were accumulated during the marriage is considered a marital asset and will need to be divided. It is essential to note that retirement plans will not be divided if a divorcing couple has signed a valid prenuptial agreement that excludes retirement assets.

Properly Valuing Retirement Assets and QDROs

Many employers offer their employees stock options. If a retirement plan includes stocks or stock options, it is common to wonder how these hard-to-value assets will be divided. When dividing stocks or stock options, the present value may not be an accurate indication of the asset’s true value. The future value of the assets and each spouse’s portion of that future value must also be considered. Some divorcing spouses choose to “buy out” their spouse’s portion of the retirement assets with marital assets of equal value instead of splitting the retirement assets.
The majority of retirement accounts require a Qualified Domestic Relations Order (QDRO) to be properly divided. This court order describes how a retirement account should be distributed after divorce and directs the retirement plan administrator to implement the division. However, IRAs do not require a QDRO. If a spouse has a retirement plan controlled by the Illinois Pension Code, he or she will need to obtain a slightly different type of order called a Qualified Illinois Domestic Relations Order (QILDRO).

Contact a DuPage County Property Division Lawyer

Dividing retirement funds and other complex assets during a divorce is often a challenging legal process that may involve significant financial and tax-related consequences. To help with protecting your rights to marital property, contact a highly experienced Wheaton divorce attorney from The Stogsdill Law Firm, P.C. Call our office today at 630-462-9500 to schedule a confidential consultation to discuss all of your divorce-related needs.

 

Sources:
https://www.forbes.com/sites/catherineschnaubelt/2019/05/08/how-to-divide-retirement-plan-assets-in-a-divorce/
https://www.investopedia.com/terms/q/qdro.asp
http://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=075000050K503

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