How Does a Retirement Distribution Work in a Divorce?
By: Gordon & Perlut, LLC
When you are going through a divorce in the Chicago area, retirement benefits may be one of the types of property you may need to think about when it comes to the distribution of marital assets. Many spouses have some type of retirement benefits, so chances are good that at least some of those retirement benefits were earned during the marriage.
Accordingly, unless those benefits have been expressly excluded from property division through a premarital or postnuptial agreement, the court will need to determine what a retirement distribution will look like.
In general, the Illinois Marriage and Dissolution of Marriage Act (IMDMA) will govern most issues pertaining to retirement distributions. The following are key pieces of information designed to help you understand how a retirement distribution works in a divorce.
Retirement Benefits Will Be Classified as either Separate or Marital Property
The first thing to know is retirement accounts will need to be classified as marital or separate property. Only retirement benefits classified as marital property will be subject to distribution in the divorce. You may wonder – how can you know how the court will classify your retirement accounts? For the most part, any retirement benefits earned after the date of marriage will be classified as marital property – unless a previous agreement stipulated they will not be subject to division.
You might be wondering – what will happen if my retirement accounts include assets I earned before and after the marriage? This is a common occurrence, and the court will typically separate out the amount in the account(s) that is marital property, and only the marital portion of the account(s) will be distributed.
Courts Will Distribute Retirement Benefits Based on Equitable Distribution
The IMDMA requires marital assets and debts to be distributed between the spouses according to “equitable distribution.” This does not mean property is divided equally, but instead, it is divided in a way that is fair to both spouses. The court will consider a wide variety of statutory factors to determine how retirement benefits, along with other marital property, will be divided in such a way as to be fair to both spouses.
QDRO Will Allow Benefits to Be Distributed Without Penalty
If the court determines a portion of one spouse’s retirement account should be distributed to the other spouse, a Qualified Domestic Relations Order (QDRO) will allow those benefits to be distributed without the spouse named on the account incurring a penalty. Typically, an early withdrawal of retirement money will incur a 10 percent penalty. If the money is distributed to the other spouse and goes directly into that spouse’s retirement account, there will be no penalty, and taxes will not need to be paid at that point. If the spouse receiving the retirement distribution does not have it deposited into his/her retirement account, the parties can still avoid the 10 percent penalty (if properly handled), but the distribution will be taxed.
Contact a Chicago Area Retirement Distribution Lawyer
Do you need advice about retirement distributions in a divorce? An experienced Chicago property division attorney can assist you. Contact Gordon & Perlut, LLC to learn more about how we can help you with your divorce.