A growing number of people in Illinois and across the country are choosing to divorce later in life, which may require additional thinking about retirement planning. Retirement funds are often some of the largest assets held by a couple during a divorce with many couples holding accounts through employers as well as private IRAs. People may negotiate the division of their accounts in a number of ways. When both spouses have large retirement funds in their own name, they may just walk away keeping their own accounts. On the other hand, when the bulk of the investments is held in one spouse’s name, a substantial division is a likely outcome.
The name on the retirement fund does not determine whether it is marital property. In most cases, the growth in retirement accounts during the marriage is considered to be part of the property division process. Dividing the accounts can vary depending on the type of retirement fund that people have. Pensions, 401(k) plans, 403(b) plans and other retirement accounts managed through an employer are known as qualified plans. In order to divide these, the plan administrator must receive a special court order, known as a qualified domestic relations order or QDRO, to make a distribution to the other spouse.
IRAs are handled differently; only the divorce decree is necessary to divide the account. Divisions due to divorce are not subject to tax penalties, but the recipient spouse must roll the funds over into their own IRA rather than using the funds if they are under 59.5 years old.
Because retirement funds can be so large, they can be some of the most important assets of the property division process. A family law attorney may represent a spouse on a range of divorce legal issues and work to protect their assets.