3 Things to Know About Retirement Distribution in Your Divorce
By: Gordon & Perlut, LLC
Distribution of marital property is a major aspect of any Chicago area divorce. Under the Illinois Marriage and Dissolution of Marriage Act (IMDMA), all property owned by spouses must first be classified as marital or separate property. Marital property gets distributed through divorce, while separate property does not. Retirement accounts are property that exist for most married couples in the Chicago region. Regardless of age, most parties have at least some assets in one or more retirement accounts. This type of property can be more complicated to classify and divide than other types of property because many parties opened their retirement accounts prior to the marriage but continued contributing to them during the marriage. The following are three things you should know about retirement distribution in your divorce.
In general, any property acquired prior to the date of marriage typically will be classified as separate property. Any property acquired after the date of marriage typically will be classified as marital property and subject to distribution unless an exception applies (e.g., inheritances, gifts to only one spouse, or property expressly excluded in a prenuptial agreement).
Because retirement accounts often get opened prior to a marriage but have significant contributions that occurred after the date of marriage, retirement accounts often have characteristics of both marital and non-marital property. Accordingly, the court must look closely at these accounts to determine which portion are subject to division.
If you have a pension from a public or government entity in Illinois, it is important to know this retirement account must be distributed slightly differently than other types of retirement accounts. More precisely, you must use a Qualified Illinois Domestic Relations Order (QILDRO) to allow the State Employees’ Retirement System of Illinois (SERS) to pay out a portion of the account. Other types of retirement accounts can be distributed through a Qualified Domestic Relations Order (QDRO).
If you withdraw money from a state pension or another type of retirement account prior to the age of retirement, you must pay taxes on that money, and will also be responsible for paying a 10 percent early withdrawal penalty. By using a QILDRO or QDRO as part of your divorce, you can take money out of your retirement account without paying that penalty. If it goes directly into your spouse’s retirement account (a transfer from one retirement account to another), no taxes will be paid on the money at the time of transfer.
Contact a Divorce Lawyer in Chicago
Dividing retirement benefits in a divorce can be extremely complicated. If you have concerns or questions, a divorce lawyer in Chicago can help. Contact Gordon & Perlut, LLC for more information.