Beyond the extreme emotional toll of a divorce, couple also have to figure out how their property will be divided. This is one of the greatly contested areas in family law and where many attorneys spend much of their time. There is the matter of identifying separate versus marital property, as well as assessing the value of property so that it can be divided. One question that I often hear regarding property division is this: how are retirement benefits divided in a divorce? This is because beyond real estate, retirement funds are often one of the most valuable assets a married couple has.
Retirement Plans are Subject to Division
Any funds earned through either spouse’s retirement plan during a marriage is considered marital property and is subject to a property division in a divorce, regardless of whether it is vested. If either spouse was already contributing to a retirement plan prior to the marriage, the court does not treat the fraction of the funds earned prior to the marriage as marital property.
How Retirement Plans are Divided
Courts will generally treat a retirement fund in two different ways. The first is to appraise the value of the retirement fund and offset this amount by awarding other marital property to one spouse, while allowing the other spouse to retain their entire retirement fund. The other method is to actually divide the retirement account and give each spouse a specific interest in the account. Since the retirement fund itself is run by a third party entity, courts are required to complete a Qualified Domestic Relations Order (QDRO), or Qualified Illinois Domestic Relations Order (QILDRO), depending on the type of retirement account. The QDRO specifies and instructs the retirement fund administrator about how and when the fund should be distributed once it vests.
How a QDRO Treats Death
Another common question I hear is this: Does a retirement fund or pension pay the alternate payee upon the death of the person earning the retirement? There is not a simple answer to this question, which depends on the type of retirement fund and the agreement of the parties upon divorce.
Separate interest QDRO — When couples choose a separate interest QDRO, this effectively makes the retirement fund administrator create a separate account for the alternate payee, who will receive their percentage of payments until their death.
Shared interest QDRO — Under a shared interest QDRO, the retirement payments continue until the death of the person earning the retirement. At this point, the payments end, unless there is some additional survivor benefit that the parties elected for.
QILDRO — For public or state pensions, Illinois law allows for a very limited death benefit, even with an agreement.
Contact a Tax Attorney to Plan Your Estate
Retirement accounts can be difficult to appraise and divide. Further, it is incredibly important to draft QDRO and QIDRO orders that are specific and enforceable. You need a lawyer. Contact the Law Office of Robert S. Thomas. I have over twenty years of experience in the areas of family law and estate planning and can help you plan for your financial future following a divorce. Contact our offices today at 847-392-5893 to schedule a consultation or visit our website today.