Dividing Retirement Accounts during a Divorce in Illinois

When couples divorce in Illinois the accumulated value of the retirement assets during a marriage is considered marital property to be divided. There are three major types of retirement benefits that need to be considered when a divorce occurs: defined benefit (pension) plans, contribution (401K) plans, and social security benefits.

Dividing Pension Plans

A defined benefit plan or pension plan is something an employer offers an employee without the input of the employee. It is something an employee will get without any contribution. For the most part, defined benefit plans have disappeared unless you work for the government or you are an executive of a larger corporation.

The first step in dealing with a pension plan in a divorce is valuing it. This is not an easy task and typically requires hiring an actuary. The actuary will then define three items:

  • the value of the monthly pension payments
  • the percentage of the benefit to be considered a marital asset
    (for instance, if your spouse receives a pension, has been employed for 30 years and married for 10 of the thirty years, 33% of the payout should be considered a marital asset)
  • define the amount of the pension the non-employee spouse is entitled

Decide How to Split the Retirement

After the value of the pension is determined a decision will need to be made on how to split the asset. There are two options:

Buyout the Non-Employee Spouse
The most common approach is buying out the non-employee spouse by the employed spouse forgoing other assets to give over. The advantage to this approach is getting to keep your entire pension benefit. However, the risk here is if the value of your pension decreases there is no way to recoup the lost amount.

Split the Asset at Retirement
Splitting the asset at retirement the other most common action taken to divide a pension in a divorce. This option is less common due to the added complexity. In cases where couples determine they want to divide the pension at retirement, additional paperwork and court orders are required. When couples go down this path they need to get a Qualified Illinois Domestic Relations Order or QI:DRO. This is a court order that will direct the retirement distribution to be split in the future based on an agreed upon percentage or judge order.

Splitting Contribution & 401k Plans

The majority of married couples will need to split a 401k, either one joint 401k plan or multiple 401k plans, but luckily splitting a 401k is much easier than a pension. The simplicity comes from the fact that a 401k often has a defined worth, but determining the value may still require an actuary.

After the value of the contribution plan is determined, agreeing on the method of splitting the asset is the next step. The same options for splitting pension plan exist when splitting contribution plans. The preferred method is splitting the asset now, into separate 401k accounts.

In some cases separating the asset will require a QILDRO, as described above before the 401k will roll over. Other times, a copy of the divorce paperwork is all that is required. This is situational based on the 401k plans.

Dealing with Social Security Benefits

Social Security benefits are generally not considered for division by the court in Illinois.

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