Divorce is an emotional process that can be complicated, especially when it comes to dividing valuable assets like retirement accounts. Retirement accounts are savings accounts created to provide financial support during retirement.
Divorce can impact retirement funds, which is why it is critical to understand how they are divided in a divorce. As an experienced family law firm, we are here to help you understand your rights and financial security during a divorce. To learn how we can help call us today at (708) 232-0017 to schedule a free consultation.
Will a Divorce Affect Your Retirement Account?
In the state of Illinois, when spouses decide to divorce, the division of assets is a key part of the process. Retirement accounts can be some of the most complicated assets to split, as they are often tied to a number of different tax laws and government regulations.
But in Illinois, all non-ERISA retirement accounts (such as 401(k)s, IRAs, and pension benefits or plans), are considered to be marital property. This means that if spouses have been married for a certain period of time, any retirement accounts or any contributions made after the marriage date must be divided by a court of law, regardless of whose name is on the account.
In Illinois divorces, the division of retirement accounts is usually handled by an experienced financial analyst or a qualified divorce attorney. The process typically involves determining the total value of each spouse’s retirement accounts, calculating the current value, and then deciding how to split them up. This will usually take into careful consideration the length of the marriage, as well as any pre-existing assets that each party may have had before the marriage.
The final agreement is then presented to a court, and any judgments about retirement accounts must be approved by the court. This agreement will also address issues such as spousal support and alimony, if applicable.
It's important to remember that the division of retirement accounts during a divorce is not always equal. The court will look at the financial consequences or situation of both parties and the length of the marriage to determine a fair and equitable distribution.
Basic Rules of Property Division
When it comes to dividing marital assets, at divorce proceedings, the court follows the rule of equitable distribution. This means that property is divided in a way that is fair, but not necessarily equal. It is necessary to note that not all assets are considered marital estate. Non-marital or separate property is typically any property acquired before the marriage or through inheritance or gift.
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Furthermore, the court may consider any contributions each spouse has made to the marriage or their respective career. For instance, if one spouse stayed home and took care of the children, the court may award them a larger share of the retirement accounts.
Above all, it is also important to remember that not all retirement accounts are treated the same. As one of the divorce issues, each type of account is subject to different laws and regulations, a qualified divorce attorney can help you understand how your particular retirement accounts will be divided.
Common Types of Retirement Accounts in a Divorce Process
There are various types of retirement accounts, but the most common are individual retirement accounts (IRAs) and employment-related retirement plans like defined-contribution plans (401k) and defined-benefit pensions. These types of qualified retirement plans have different rules when it comes to dividing them in a divorce agreement.
When dividing a 401k or other defined-contribution plan, the court will typically determine each spouse’s share of the account, taking into consideration any pre-existing assets and contribution amounts. The court may also determine if any additional contributions should be made to the account before the divorce is finalized.
On the other hand, defined-benefit pensions must be divided using a special form called a Qualified Domestic Relations Order (QDRO). This form is used to determine how much of the account is marital property and how much should be awarded to each spouse. It's important to note that the QDRO must be approved by the plan administrator before it can take effect.
What Happens to Retirement Funds in Divorce?
Retirement funds acquired during the marriage are generally considered marital property and are subject to asset division. This means both spouses are entitled to a share of the retirement assets, especially for divorce purposes. The portion of the retirement account earned during the marriage is the marital portion.
Also, if the account was acquired before the marriage, only that portion of the retirement fund earned during the marriage is subject to division. The court will use the date of marriage to determine what portion of the retirement funds is marital property.
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The court will also consider any contributions made to the account during the marriage, as well as any withdrawals or transfers that occurred. The court will then use these figures to calculate an equitable division of retirement funds.
How Do You Calculate Marital Property in Retirement Accounts?
Calculating the marital portion of a retirement account can be complicated, especially if contributions were made before and after the marriage. The court will use a variety of methods to calculate the marital portion, including expert witnesses to determine the exact value of the marital portion and other financial calculations. For example, an actuary may use special software ('actuarial software') to calculate the marital portion.
The court will also take into consideration any pre-existing assets, as well as the current market value of the retirement funds. The court may also consider any future retirement income that each spouse is entitled to receive, as well as any other financial factors that may be relevant.
Requirements for Dividing Retirement Accounts:
The court will require a Qualified Domestic Relations Order (QDRO) to divide retirement assets in a divorce. This document outlines how the retirement plan administrator should divide the funds. The QDRO must be approved by the court and the retirement plan administrator.
Also, if the retirement account is an individual or employer-sponsored plan, then the court may require additional documents to ensure that all of the requirements are met. This may include additional financial documents, as well as a divorce decree or settlement agreement.
What's Involved With a QDRO and How Do You Get One?
Getting a QDRO can be complicated, which is why it's important to have an experienced divorce lawyer on your side. Your lawyer will help you gather all the necessary information and draft the QDRO. Once the QDRO is approved, it must be sent to the retirement plan administrator for processing.
Contact Our Experienced Divorce Attorneys:
Divorce can be a difficult process, especially when it comes to dividing retirement accounts. If you're going through a divorce and need advice on how to handle retirement benefit accounts, contact our experienced family law attorneys. We have the experience and knowledge needed to help you protect your future retirement income.
At Tommalieh Law, our experienced divorce attorneys understand the unique aspects of divorce and are here to help you navigate this complex process. With careful consideration, we will work with you every step of the way to ensure that your financial future is secure. Call us at (708) 232-0017 for an initial consultation. We look forward to helping you reach a favorable resolution.