Retirement accounts are frequently the largest asset in a divorce proceeding. Careful consideration should be given to dividing retirement assets to ensure a secure financial future.
If you and your spouse have equal or nearly equal retirement savings accounts in your own names, many couples often agree to keep their own accounts after the divorce.
In cases where one spouse has substantially more retirement savings or when all of a couple’s savings is in one account in one spouse’s name, such as a 401K, part of one spouse’s retirement can be transferred to the other spouse’s name using a qualified domestic relations order (QDRO).
A QRDO is a legal document authorizing the transfer of funds in qualified retirement plans such as 401Ks and pensions from one spouse to the other. In accordance with the couple’s agreement, retirement funds can be transferred without taxes or early withdrawal penalties.
Be on the lookout, however, for non qualified plans such as “supplemental executive retirement plans” or “excess benefit” plans as well as stock options, restricted stock, and deferred compensation, which are not subject to the same federal regulation or QDRO rules. Many of these products are payable only to the account holder, so adjustments will have to be made to the division of the overall retirement funds and other property to arrive at a fair division.
Finally, when negotiating the division of your retirement savings, remember that all retirement funds are not created equally. Taxes will have a big impact on the value of certain types of accounts. For example, money in a 401K will be worth less than an equal amount of money in a Roth IRA because the 401K is still subject to taxes when withdrawn, whereas a Roth IRA can be used tax-free in retirement. Paying attention to details is key.
For many divorcing couples, aside from the family home, a retirement account is their biggest financial asset. Securing the help of an experienced divorce attorney will ensure the fairest and most equitable property division possible given the complexity of the laws. Contact the Law Offices of Ronald L. Bell PC for help with your Illinois division of marital property division questions. We have assisted many clients in securing fair and equitable agreements and welcome the opportunity to help you and your family.