If you are contemplating the end of your marriage, it is normal to start thinking about life post-divorce as well. Among the many concerns that you may have, financial anxiety might be at the top of your mind.
A significant question you might ask is whether you’ll have to share your retirement contributions with your spouse. You can potentially ease your anxieties by understanding how Illinois law treats these assets.
Equitable distribution and marital property
The Prairie State uses an equitable distribution system when dividing couples’ marital property at the end of their marriage. The family court strives for a fair distribution by considering the unique circumstances of a couple. As such, the distribution isn’t always a 50/50 split.
Since retirement accounts are categorized as marital property, you can expect yours to be considered for property division. However, any contributions you had made to your retirement account before you got married will not be subject to division.
The challenge in distinguishing between marital and non-marital contributions lies in establishing your retirement account’s value at the time of marriage and the value appreciation at the time of divorce. For this reason, there will be a need to trace the contributions made to your retirement account before and during the marriage.
Dividing your retirement account
Many couples use a Qualified Domestic Relations Order (QDRO) to divide retirement accounts during divorce. You might also prefer this approach because it allows you to give your spouse their share of the marital property without incurring tax penalties.
Should you choose this approach, you can benefit from appropriate legal guidance in drafting a legally binding order that complies with state and federal laws.
Aside from using a QDRO, you can also choose to make direct payments to your spouse’s account. Alternatively, you might consider awarding your spouse other marital assets to compensate for their share of your retirement account. This way, your golden years savings can remain untouched during such a significant life transition.
If you’re contemplating divorce, it’s crucial to understand that dividing retirement accounts isn’t always a straightforward process. You might benefit from legal assistance so that you can better understand your account value fluctuations, tax implications and the ideal property division approach that is most suitable for your specific retirement plan.