Many who are considering divorce may wonder if a ‘DIY’ is an option if it is an amicable split. You and your spouse may be in total agreement and just want to split things 50-50, so what could go wrong?
While many couples dissolve their marriages without significant legal involvement, when it comes to divvying up marital property such as retirement accounts you should consult an experienced Illinois family law attorney to avoid financial consequences.
Take the case of one divorcing couple who decided the fair thing to do was just pull out half of one spouse’s 401k and give it to the other, fair and square. However, because they did not have a Qualified Domestic Relations Order (QDRO) allowing them to transfer funds directly into the others retirement account without penalties or fees, the couple not only paid roughly 40 percent in taxes, but also incurred a ten percent penalty for early withdrawal. In this case, the couple ended up paying over $100,000 in taxes and penalties on the $250,000 withdrawn which could have been avoided with a QDRO.
Divorcing couples who have retirement assets are advised to hire an attorney to take a look at the retirement accounts not only to prepare a QDRO, but to make sure that everyone is getting what they think they are receiving in consideration of tax treatment that can vary depending on whether the retirement accounts are a 401K, an IRA or a pension, and in cases where a cash out distribution is desired.
The cost of getting a QDRO is reasonable, especially when you consider that not getting one could result in losing significant wealth. It is important to find an attorney who is familiar with QDRO preparation who can work with your retirement fund sponsor to draft an agreement adjusted for state laws.
Experienced Illinois Divorce and Division of Retirement Accounts Attorney
If you have questions regarding marital property division and non-marital property division in an Illinois divorce, contact the Illinois Family Law offices of Ronald L. Bell & Associates PC for more information at 847-495-6000.