How is a Retirement Account Split During an Illinois Divorce?

 Posted on July 19,2024 in Division of Assets

While the division of retirement accounts during an Illinois divorce can be complex, it can also be a crucial part of the division of assets process. Some spouses in the middle of a contentious divorce may simply walk away from their share of the retirement account just to have the matter over and done with. Other spouses may not believe the retirement account is worth enough to go through the headaches of splitting it.

Aside from the marital home, retirement accounts can be one of the most significant assets owned. Community property states divide marital assets—including retirement accounts—50/50.  Equitable division states (like Illinois) divide marital assets fairly, if not evenly. Having a Naperville, IL division of assets attorney working for an equitable split of the marital assets ensures both parties are treated fairly.

Will I Have to Split My Retirement Evenly with My Spouse?

Under Illinois law, the part of a retirement account accumulated during the marriage is considered marital property and will be divided fairly during the asset split. If the spouses marry later in their careers, either one may have significant retirement savings that are considered their separate property. Retirement earnings from 401(k) contributions before the marriage are considered "non-marital," while contributions and earnings after the marriage are considered "marital."  

As an equitable division state, it could be presumed that the marital portion of the retirement account will be split 50/50; the actual division will depend on the length of the marriage, the future earning capacity of both spouses, whether there is a significant age difference between the spouses, and the amount of non-marital assets each spouse has. The split of marital retirement accounts can be changed if both parties agree on a different arrangement.

How are Retirement Accounts Divided?

A QDRO (Qualified Domestic Relations Order) is used to divide a retirement account in a divorce proceeding. This order allows the transfer of a portion of one 401(k) account into a separate retirement account established by the other party. When a QDRO is implemented, the 10 percent penalty for early withdrawal from a 401(k)-retirement account is waived. If one spouse chooses a lump sum payment from the other’s retirement account, the person receiving the funds will have to pay the required taxes.

There are exceptions to splitting retirement accounts, namely when the spouses agree that one will receive a greater share of other marital assets in return for allowing the spouse with the retirement account to keep the entire account. Some couples have a premarital or post-marital agreement that specifically excludes the retirement account from being divided, often because the spouse without retirement is unaware of the value of the account.

What if One Spouse Cashes Out a 401(k) to Avoid Division?

A spouse who was planning a divorce could have quietly cashed in his or her retirement account and then stashed the money with the intent of keeping the entire amount. Cashing out a retirement account early can have serious tax implications; hidden assets are virtually always discovered. A spouse who tries to hide assets to avoid division could have sanctions issued against them, so it is never a good idea.  

It is also wise to remember that retirement accounts are designed to increase in value over the course of years, so the future value of the retirement account is sometimes considered. However, courts often only consider the present value. An attorney should always be consulted before cashing out or dividing a retirement account.  

Contact a DuPage County, IL Division of Assets Attorney

Because the division of retirement accounts is inherently complex, it can be beneficial to have an experienced Naperville, IL division of assets attorney working on your behalf. At a time when you need highly skilled legal representation to ensure a fair division of assets, an attorney from Calabrese Associates, P.C. can help you resolve asset division issues. You may require financial experts to help determine your fair share of the retirement assets. Once that is accomplished, we will fight for your rights in court. Contact Calabrese Associates, P.C. today at 630-393-3111 to schedule an appointment.