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Divorce and Retirement Accounts: Splitting Assets Fairly

By Nottage and Ward on October 15, 2023

Illinois is an equitable property division state. When a marriage terminates in divorce, all marital assets are subject to equitable distribution – meaning they are distributed fairly but not necessarily equally. All property and assets acquired by either spouse during the marriage are considered marital property, including retirement accounts. Dividing 401(k)s, IRAs, or other retirement accounts fairly can be a complicated and emotional process.

What Types of Retirement Accounts Are Distributed in a Divorce?

A retirement account that either spouse obtained after the marriage or had before the marriage but contributed to during the marriage is typically considered marital property under Illinois law. Even if you were the only one contributing to your retirement plan, your spouse may have a claim to a portion of your retirement savings in a divorce. Types of retirement savings plans that may be subject to equitable distribution include:

  • 401(k) – employer-sponsored retirement savings plan
  • 403(b) – retirement plan offered by public schools
  • IRA – individual retirement account
  • SEP – simplified employee pension
  • TSP – (thrift savings plan) retirement savings and investment plan for federal government employees and uniformed services members

What Are the Legal Considerations for Dividing Retirement Accounts?

In community property states, such as Arizona, California, New Mexico, and Nevada, assets acquired during the marriage are considered equally owned by both spouses and must be split 50/50 in a divorce. In Illinois and other equitable distribution states, however, assets are not necessarily split equally, and various factors may be considered in the division of assets.

Most couples dividing funds in a 401(k) or other qualified retirement account will need a Qualified Domestic Relations Order (QDRO). This is a court order that allows for retirement account assets to be divided without triggering taxes or penalties. If retirement savings are in an IRA, a transfer incident to divorce may be performed, which serves the same purpose as a QDRO. In the case of a pension, the court may order that a portion of one spouse’s pension be awarded to the other spouse. The spouse who receives the award will need to take steps to ensure that he or she will receive their rightful share of the pension when it becomes payable.

What Factors Influence the Division of Marital Assets?

Family courts take a number of factors into consideration in dividing marital assets. These factors may include:

  • The assets and debts of each spouse
  • Each spouse’s contributions to the marriage
  • The future employability and earning power of each spouse
  • The financial needs of each party
  • The standard of living to which both spouses are accustomed
  • How long the marriage lasted
  • The age of each spouse

Different options may be available for the division of retirement accounts. These matters can often be resolved through negotiation and settlement. For example, if both spouses have retirement accounts in their own names and those accounts are similar in value, the parties may agree that each spouse will retain ownership of their own retirement account without transferring funds to the other. A spouse with a retirement account may offer the other spouse specific marital property in lieu of a portion of their retirement savings.

Chicago Divorce Lawyers You Can Trust

Distribution of marital property can be one of the most complicated and highly contentious aspects of a divorce. At Nottage and Ward, LLP, we have more than 30 years of experience providing rational answers to emotional decisions. Our Chicago divorce attorneys focus exclusively on family law matters. We have extensive experience negotiating, litigating, and resolving complex financial and parental responsibility issues.

If you are facing divorce and concerned about the division of retirement accounts or other marital property, contact us at (312) 332-2915 today.

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