Divorce and Retirement Savings

Divorce and Dividing Retirement Savings

Retirement savings are part of a couple’s long term retirement plans.  But divorce changes those plans and the retirement savings are an important part of the marital estate that will be subject to division.

Many retirement savings plans are accounts like IRAs or 401(k)s or pensions, which may have been established by employers. In some cases, the account may have been set up prior to the marriage. How the divorce will impact the retirement accounts may depend on whether all or part of the plan is considered part of the marital estate.

It is important to know that the final court order of dissolution of the marriage usually does not result in a division of this marital asset. There usually must be a separate qualified domestic relations order (QDRO) or qualified Illinois domestic relations order (QILDRO) issued by the judge for each specific retirement plan.

Determining the Type of Retirement Plan and if a Plan is Marital Property

Is the plan marital property? Retirement plans that were established during the marriage with marital funds, likely are part of the marital estate. The first step is to determine if the accounts are marital, as well as whether there is any non-marital portion to them.

For example, if the account had already been established by one party at the time of the marriage, then continued to exist and be funded by marital assets, it must be determined what portion of the account is separate, non-marital property and what portion is marital property.

Get the specifics of each plan. There are different types of retirement plans. For example, some yield income. Some yield the ability to have cash, while others provide for a stream of future income. Each has a different requirement about how the plan can be divided.

It is vital to get all the plan documents that provide the specifics of each plan to determine the rules of the plan.  This is the only way to have an equitable division of the plans that contain marital assets.

What is a QDRO or QILDRO?

A qualified domestic relations order (QDRO) or qualified Illinois domestic relations order (QILDRO) are each a special court order that gives one spouse the right to be paid a portion of the benefits the other spouse earned from an employer-sponsored retirement plan during the marriage. Retirement plans, such as 401(k) plans, IRAs, pensions, and others, are governed by state and federal laws.

Without a QDRO/QILDRO, the spouse, known as the alternate payee, who is not the participant in the retirement plan, will not be able to collect benefits from the plan -even if the settlement agreement provides for benefits to be paid and that agreement has been accepted by the court.

For more information about how retirement savings plans are divided in your divorce, contact us at Bruckner Hernandez Legal Solutions for a consultation.