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Retirement and Investment Accounts in Divorce (QILDRO/QDRO)

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Retirement and Investment Accounts in Divorce (QILDRO/QDRO)

If you are planning to file for divorce, or if you are seriously considering divorce in Chicago, it is critical to gain an understanding of how your property will be divided in a divorce according to Illinois law, including retirement and investment accounts. For most married couples, at least a portion—if not all—of any retirement or investment accounts you own will be classified as marital property and will be subject to distribution according to the Illinois Marriage and Dissolution of Marriage Act (IMDMA).

Depending upon the type of retirement or investment account, you may be required to have a Qualified Illinois Domestic Relations Order (QILDRO) or a Qualified Domestic Relations Order (QDRO) in order for the account to be divided. At the very least, a QILDRO or QDRO prevents you from having to pay a 10% penalty for early withdrawals from a retirement account, but you will still be responsible for tax in the present or in the long term. We want to provide you with more information about QILDROs and QDROs when it comes to dividing retirement and investment accounts in your divorce.

What is a QILDRO or QDRO?

A QILDRO in Illinois, or a more general QDRO, is a court order that recognizes the right of an “alternate payee” to receive money from a retirement or related investment account. More specifically, the IMDMA defines a QILDRO as a court order that recognizes an alternate payee’s right to receive someone’s retirement benefits, and it is issued during a divorce case in the state.

If you or your spouse have retirement benefits that have accrued as part of the Illinois State Retirement System, a QILDRO will be necessary for any of those benefits to be distributed to the other spouse in the divorce case. A QILDRO can also be used to identify a dependent child or another person as an alternate payee from a government retirement account. 

A QDRO is also a court order that allows an alternate payee to obtain benefits from a retirement plan, but it is not state-specific. The IRS explains that a QDRO is an order for a retirement plan to pay child support, alimony, or marital property rights to a spouse or a dependent.

Do You Need a QILDRO or QDRO?

If any of your retirement benefits that are classified as marital property are benefits from a state government job, you will need a QILDRO for those benefits to be distributed.

Even if you have other retirement investment accounts that are not state pensions or similar accounts, a QDRO can be necessary to avoid the 10% penalty linked to early withdrawals from retirement accounts. QILDROs, too, allow you to avoid the 10% penalty. If any money is taken out of the account entirely—and not transferred to your spouse’s retirement account, for example, then tax will need to be paid on the withdrawal.

Contact a Chicago Divorce Lawyer

If you have questions about retirement or investment accounts in divorce, one of our Chicago divorce attorneys can help. Contact Arami Law, Inc. today.

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