Dividing Retirement Accounts in an Illinois Divorce

 Posted on October 21, 2015 in Divorce

Sometimes, the most valuable asset in a divorce is one that is the hardest to divide, without destroying its value. Retirement accounts such as IRAs, 401(k)s, and pensions are governed by a combination of state and federal laws. Often, there are major tax consequences for early withdrawals from these plans. If the correct formalities are not followed, accounts can be rendered worthless, or one spouse could end up with nothing-even if the account was marital property.

What You Do Not Know Can Hurt You

For generations, state and federal lawmakers have worked hard to protect the retirement accounts of workers. A detailed set of regulations and guidelines have developed that control in regards to how plans may be split in cases of divorce. Many times a special order is required-a Qualified Domestic Relations Order (QDRO). A QDRO must be signed by a judge before any changes can be made to the way a retirement plan pays out the benefits.

If a QDRO is not implemented, or is improperly implemented, it can result in benefits not being distributed in the way the parties agreed or as a judge ordered. Additionally, there can be disastrous tax consequences.

A properly drafted and executed QDRO will protect a spouse against the early death of the retirement account holder and will make sure payments are properly made by the retirement account when it comes time for the plan to pay out the benefits.

Stocks Are Not Like Money in the Bank

Most modern retirement accounts are heavily weighted with stocks. Many employers offer employees stock options. Stocks have a value that regularly fluctuates. Stock options may not even have any value until a future date or event. However, these stocks are often marital property and both spouses have an interest in making sure they are divided equitably.

Stocks and stock options are not just like cash. Like with retirement accounts, the fair way to divide the marital property is not only considering the present value, like with a bank account, but to also consider what the future value might be and what percentage of that future value each spouse should be entitled to.

Not every legal professional knows how to deal with QDROs and retirement plans. Therefore, if you have questions regarding the division of IRAs, 401(k)s, or pensions in your divorce, you should contact a knowledgeable DuPage County QDRO attorney. Please call The Stogsdill Law Firm, P.C. at 630-462-9500 today.

Source:

http://www.ilga.gov/legislation/ilcs/ilcs4.asp?ActID=2086&ChapterID=59&SeqStart=6000000&SeqEnd=8300000