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Tuesday 22, May, 2018

Dividing Retirement Plans in Your Divorce

As you many know, when you file for divorce in Illinois, any marital property—both assets and debts acquired during the marriage—will be subject to division. Under the Illinois Marriage and Dissolution of Marriage Act (IMDMA), assets are divided according to a theory of equitable distribution. In other words, the court takes account of all marital assets and debts, and then it distributes them in a manner that it fair and just to both of the parties. Where do retirement accounts come into play? As the IMDMA explains, any property acquired before the marriage typically is considered “non-marital” or separate property, which means it is not subject to division. However, retirement plans are a little bit different.

Indeed, as the statute clarifies, non-marital assets include “property acquired before the marriage, except as it relates to retirement plans that may have both marital and non-marital characteristics.” What do you need to know about how the court classifies retirement plans and how they are divided in the event of a divorce?

Classifying Retirement Plans: Marital and Non-Marital Characteristics

What does it mean when the IMDMA says that retirement plans often have both marital and non-marital characteristics? If you know about commingling property, then you may already have a sense of how retirement accounts and other benefits can be made up of both marital and non-marital property. Let us give you an example of what we mean.

Imagine that Mary starts working for her employer in 2000. At that point in time, she begins paying into a retirement plan, and her employer makes contributions, too. In 2002, she meets her future spouse. Several years later, in 2005, they decide to get married. Mary and her partner make a decision that they will not enter into a premarital agreement, so there is no prenuptial agreement addressing assets like retirement plans and how they should be divided (or whether they should be subject to division at all) in the event of divorce.

To that end, the marriage happens in 2006, but by 2018, the couple decides to file for divorce. Part of Mary’s 401(k) account contains funds from before the marriage (roughly from 2000 through 2006), as well as funds from after the marriage (roughly from 2006 through 2018). The assets that exist from before the marriage are “non-marital” property, but those from the date of marriage up until separation are “marital” property for the purposes of distribution. Typically, when an asset has both marital and non-marital characteristics, the court will try to trace out the distinct amounts.

Distributing Retirement Funds Through a QDRO

If you have retirement accounts and are considering divorce, you should speak with a Chicago divorce attorney about how a Qualified Domestic Relations Order (QDRO) or a Qualified Illinois Domestic Relations Order (QILDRO) can help you to have the funds disbursed outside of the property distribution process. Plans from private companies typically are subject to a QDRO, while plans under the public retirement system typically are subject to a QILDRO.

Keep in mind, however, that pension benefits that are classified as marital assets are subject to division like any other marital property.

Learn More from a Chicago Family Lawyer

Property distribution is complicated, especially when it involves retirement accounts. A Chicago divorce lawyer can help with your case. Contact Arami Law Office today.

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