Orders to Divide Retirement Account

When it comes to the division of marital property, Illinois is an equitable distribution state. This means that any property acquired during the marriage, including retirement funds, is considered marital property and is subject to equitable distribution between spouses. 750 ILCS 5/503(a)-(b). In the event of a divorce, what is the best way to divide your retirement funds so that both parties are financially protected?

Retirement funds oftentimes come in the form of 401(k) or pension plans. A 401(k) is a defined contribution plan that allows employees to save for retirement, often with matching contributions from their employer. In contrast, a pension is a defined benefit plan, funded primarily by the employer, which pays a fixed amount to the employee upon retirement for life. Common jobs that offer pensions include military service members, firefighters, police officers, government employees, and public school teachers. In Illinois, if either plan is acquired during the marriage (even partially), then part or all of the retirement plan is considered marital property and subject to division.

In addition to language in the final Judgment for Dissolution of Marriage as to how the retirement funds will be allocated between the parties, federal law requires a specific Order for allocation retirement assets which is called a Qualified Domestic Relations Order (“QDRO”) or a Qualified Illinois Domestic Relations Order (“QILDRO”). 

A QDRO is a court-entered order that divides a former spouse’s retirement plan and gives the other spouse the legal right to access some or all of the funds as part of the division of the marital estate.  The amount is to be determined by factors like the length of the marriage, contribution to the marriage, and each spouse’s financial situation.

Further, a QILDRO is an Illinois-specific, court-entered order that typically applies to public retirement systems within the state.  A QILDRO only extends to state-funded pension plans, like those for public school teachers or police officers.

Upon entry of the QDRO, the Plan Administrator can transfer a portion of your spouse’s retirement funds into an account, which you can then transfer into your own IRA without any tax or penalty.  After the funds are transferred to an IRA, you may invest the funds as you choose or can even withdraw the funds for use, but you will be taxed and possibly penalized if you want to withdraw funds before a specific age. 

The Law Office of Erin M. Wilson LLC knows how difficult it may be to divide marital property in a fair and equitable manner.  We often advise clients on the division of retirement funds and other marital assets. Please contact The Law Office of Erin M. Wilson LLC for a complementary consultation regarding your divorce at 312-767-4220.

NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.