Even if you are many years away from leaving the workforce, your retirement benefits may be an issue now if you are going through Illinois divorce. Often, these accounts are among the most valuable assets involved in a divorce, making them a highly contentious issue. Plus, the complicated structure, vesting rules, and other details make them one of the more difficult assets to divide fairly and equitably between divorcing spouses. You can rely on an experienced divorce and complex property division attorney in Chicago to protect your rights, but you may find some background information helpful.
The proceeds of retirement accounts are subject to division in an Illinois divorce case, though only the portion you accrued after the date of your marriage is considered marital property. Illinois law encourages parties to agree on asset division, but a court will make a determination on property distribution if you cannot reach an accord. Under either scenario, the agreement or judge’s decision becomes part of the final decree, which is legally binding on the parties.
However, the divorce decree is not binding on the holder of most retirement accounts: Retirement benefits may not be paid to anyone other than the named plan member, regardless of the divorce court’s order. Additional documentation is necessary to force an assignment of rights to retirement benefits.
Illinois has enacted a statute to address the situation through a Qualified Domestic Relations Order (QDRO). The QDRO allows funds in a retirement account to be divided between a plan participant and alternate payee, so they can be deposited into the alternate payee’s retirement account without penalty. A QDRO requires the administrator of your pension plan to comply with its terms, including those that require an assignment of rights or issuance of benefits to an alternate payee.
A party who works for the state and has a pension plan under the public retirement system would use a Qualified Illinois Domestic Relations Order (QILDRO) to accomplish a property division in a divorce. Note that a QDRO or QIDRO can also be applied to the spousal support in an Illinois divorce case.
These orders can be a hassle in Illinois divorce cases, and many parties opt to apply a more tangible marital asset to property division rather than go through the complicated process of creating a QDRO or QIDRO. However, there are tax benefits that may make a QDRO or QIDRO an option to consider.
Any amounts you pay to your spouse in asset division or as support are not tax deductible. However, if you pay them to your spouse through a qualifying account through a domestic relations order, there are certain tax advantages. Likewise, you will not be subject to an early withdrawal penalty for the transfer of funds.
If you would like to know more about retirement benefits in divorce and other complex property division topics, a skilled attorney can help you understand your options. Please contact Arami Law Office to set up an appointment with one of our complex property division lawyer today.
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