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How Are Retirement Funds Divided In A Divorce?

When it comes to divorce, few items are left untouched or undivided. This includes retirement funds. How does the Court handle retirement funds during a divorce? In Illinois, the Judge treats retirement accounts as marital property, at least partially, if a spouse contributed money to the account during the marriage. The type of retirement fund will then determine if, how and how much money will be split between spouses.

A deferred compensation account, 401k, IRA, or pension can be one of the most valuable assets a couple owns. Not all accounts are equal, and some funds will not be available to split between spouses. However, the Court will determine what portion of the available funds can be divided. They will also decide the manner in which funds can be paid to the spouse who doesn’t own the account. You have a higher chance of receiving a portion of your spouse’s retirement plan if you do not have a prenuptial agreement.

Pensions and Deferred Compensation Plans

These are perhaps the most difficult retirement funds to divide during a divorce. This is because they contain portions of the employee’s pay that have been withheld until their designated retirement date. In order for the Court to divide this asset, it first needs to be valued. This is where it can be important to utilize experts, such as an actuary, to ensure you’re getting the most accurate estimate.

Sometimes, the employer has calculations available that estimate the future monthly draw, assuming the spouse retired at the time of divorce. Other times, the Court has to determine the marital portion of the pension. This is usually done by dividing the number of months the couple was married by the number of months the spouse was participating in the pension. The other spouse is then awarded a percentage of that number.

Along with defining the value of monthly pension payments, an expert may also evaluate what percentage of these benefits may be considered marital property. Additionally, a value will need to be placed on the amount the non-employee spouse is entitled upon divorce finalization.

401k, 403(b), etc. Plans

Balances of 403(b) and 401(k) plans, or similar, are slightly easier to divide. This is mostly because they already have a defined worth. Nevertheless, it may still be beneficial to enlist a professional to ensure complete accuracy. Upon evaluation of an expert as well as the Court’s ruling, funds from a 401k may be split into separate accounts. However, a QDRO (or sometimes QILDRO in Illinois) may be necessary.

What is a QDRO? Do I need one?

A QDRO (Qualified Domestic Relations Order) is a special court order that grants a spouse the rights to a portion of the retirement account. The spouse can then choose to give the funds to themselves or a child. Without a QDRO, the individual will not have any rights or access to the retirement funds.

In addition, a QDRO can also help to avoid any unnecessary taxes and penalties associated with moving or removing money from a retirement account. Property transfers in a divorce are not taxable events for the IRS. As a result transferring half of a 401(k) to your spouse will not result in taxes or withdrawal penalties. This is as long as you use a proper QDRO to effectuate the transfer. If you instead withdrew the money, or cashed out the 401(k), to divide it, then those taxes and penalties would be applied.

QDRO’s must be properly worded to achieve the desired result. This is because they can be especially complicated court orders and.


An IRA or Individual Retirement Account usually does not require a special division order, like a 401(k). In most cases, the Court divides the funds within these accounts based on what they believe is evidence of marital property. The Court considers an IRA marital property based on when the account was opened and/or when contributions were made. In some cases, all or part of the account may be marital property. Accurate records will better help the Court determine how much.

For example, a spouse may have opened and contributed to an IRA account before the marriage. As a result, the Court considers those early contributions to be non-marital funds. However, anything added to the account after the marriage may be considered marital property. When dividing the funds themselves, the spouse whose name is not on the IRA will often open their own account after the divorce. The spouse then uses an IRA transfer authorization form to transfer the funds.

A Family Lawyer Makes The Process Easier

Dealing with retirement funds of any kind can be confusing, especially during a divorce. That’s why it’s imperative that you seek a skilled family attorney who can help guide you through the process. They also have the connections and resources to financial advisors and experts. You may need to use them to obtain an accurate and fair settlement. At minimum, a well-connected family law attorney can put you in touch with advisors they trust to help you set up your investments post-divorce. Those advisors include those skilled in handling investment awards in divorce cases.

Contact us at Strieker Law Firm to learn how we can help guide you through your unique situation and make the divorce process easier for you.