Dividing retirement accounts and pensions in Illinois includes determining whether they are marital property. Under state law, the portion of a retirement account or pension earned during the marriage generally should be marital property, even if the account is only in one spouse’s name. The funds are subject to equitable distribution, and splitting these assets can be highly technical, with issues such as valuation, taxes, and special court orders.
A divorce lawyer can advocate for your interests during this process. Call Erlich Law Office at 630-538-5331 for guidance in DuPage County.
How Are Retirement Accounts Divided in an Illinois Divorce?
Illinois is an equitable distribution state. Courts divide marital property not necessarily 50/50, but in a way that is fair. This rule applies to most retirement savings in a divorce, including 401(k)s, IRAs, and other accounts acquired during the marriage.
However, contributions made before the marriage may be non-marital property. Determining this often requires tracing contributions and growth.
When figuring out what is fair when dividing retirement accounts in Illinois, courts look at factors such as the length of the marriage, each spouse’s financial circumstances, and each spouse’s contributions to the marriage. That said, many divorces are uncontested, and the spouses negotiate property division between themselves without court involvement. However, if an uncontested divorce turns contested, retirement accounts can become a point of conflict.
What Is a Qualified Domestic Relations Order?
In most cases, the division requires a Qualified Domestic Relations Order. QDROs let distribution happen without triggering penalties or taxes. When dividing retirement accounts, keep a few things in mind:
- Timing of contributions: Usually, only the portion of the account earned during the marriage is divisible.
- Valuation: When valuing accounts, factor employer contributions, growth, and investment gains.
- Tax implications: Look at after-tax value, not just the face value of the account, to ensure equitable division.
To expand on the tax implications point, a Roth IRA has already been taxed, so withdrawals in retirement are generally tax-free. Meanwhile, a traditional 401(k) or IRA has not been taxed yet, so withdrawals in retirement get taxed as ordinary income.
If a court (or spouses negotiating between themselves) ignored these tax implications, one spouse could end up with an account worth far less in spendable dollars than the other. The tax consequences are just one reason it is important to work with an Illinois divorce lawyer who understands strategies for protecting your assets.
What If Both Spouses Work and Earn Similar Salaries?
If each spouse has comparable retirement savings in a divorce, the spouses or the court may decide that each person keeps his or her accounts. This avoids the need for complicated transfers and multiple QDROs.
However, one spouse may have a pension, while the other has a 401(k) or IRA. These assets do not always have the same after-tax value. An equal swap is not necessarily fair. Also, if one spouse worked for his or her employer longer, their account may include more non-marital contributions that need separating.
Understanding Pension Division Under Illinois Marital Property Law
Dividing retirement accounts and pensions can be particularly important in a high net worth divorce, where retirement assets represent a huge part of the marital estate. Mistakes in handling pension division can result in you losing much-needed financial security later in life.
However, pensions can be more complicated than other retirement assets. This is because pensions represent future benefits rather than current savings. Pensions basically are a promise of income rather than a pot of money sitting in an account. Unlike a 401(k) or IRA, where you can look at the current balance, a pension is based on factors such as years of service, salary history, and retirement age.
In other words, pensions are harder to value during divorce since they may not yet be vested, the actual amount may remain unknown until retirement, and payments depend on future conditions such as longevity and plan rules.
Pensions often involve specialized rules depending on whether the plan is public, private, or military. Dividing them usually requires a separate court order, similar to a QDRO. Under Illinois law, pensions in divorce are marital property to the extent they were earned during the marriage. Even if the pension is not yet vested or payable, the marital portion is subject to division. Courts typically use either the present value or reserved jurisdiction method to divide pensions.
Present Value
This approach assigns a current dollar value to the pension, which other assets then offset. For example, one spouse might keep the pension while the other receives assets of equal value, such as real estate or investment accounts. Through August 31, 2025, the typical home value in DuPage County is $424,696.
Reserved Jurisdiction
The court may use this method when there is not enough property for a present-value offset or the value of the pension is difficult to determine. The court reserves jurisdiction and orders that the non-employee spouse receive a portion of the pension benefits when they are paid in the future. This method ensures that the spouse receives their share without requiring immediate valuation of the pension.
What Role Does a Divorce Lawyer Play in Splitting Retirement Assets?
A DuPage County divorce attorney can help with the fair and legal splitting of retirement accounts and pensions.
- Identify marital vs. non-marital property: A lawyer can figure out what portion of your retirement assets is subject to division and what is your separate property.
- Navigate high net worth divorce issues: You or your spouse may have multiple accounts, stock options, deferred compensation, and complex pensions. An experienced lawyer can handle the intricacies of these assets.
- Prepare QDROs and related documents: Trying to divide retirement accounts without a QDRO can result in tax penalties and the stresses of delays and disputes.
- Negotiate fair settlements: Negotiation is even more important when retirement savings make up a large share of the marital estate. A lawyer can ensure you do not sacrifice too much or accept an unfair trade-off.
Local lawyers are familiar with judges’ tendencies and can connect you to financial professionals in the area. Erlich Law Office can help in DuPage County. Contact us today.
FAQs About Dividing Retirement Accounts in DuPage County
Do I Automatically Get Half of My Spouse’s Retirement Savings in a Divorce?
Since Illinois follows equitable distribution, not automatic 50/50 division, length of marriage, financial circumstances, and other property division considerations all play a role in what is equitable.
What Happens if We Agree on Retirement Division but Make a Mistake in Paperwork?
Mistakes such as failing to file a QDRO can cause tax penalties, delays, or even loss of benefits when dividing retirement accounts. An attorney can help with the correct preparation and approval of QDROs.
How Difficult Is it to Do My Own QDRO?
QDROs are tricky for people to do on their own. They are highly technical and must meet both state divorce law requirements and the specific rules of the retirement plan. If the wording is not precise, the plan administrator can reject it, or worse, the language can result in unexpected tax penalties, delays, or one spouse losing access to benefits.
