When entering a divorce in Illinois, every aspect of a person’s life may be at risk, and their retirement savings are not immune to the proceedings. Individuals facing divorce need to understand this risk and what they can do to lessen their impact. As they work with a high net worth divorce lawyer, they must consider the impact of their decisions on their retirement plans.
Retirement Plans in Illinois Are Typically Shared Marital Property
Under Illinois law, retirement plans are typically considered marital property. This means, even if only one spouse contributed to the plan, they are divided and shared in the divorce proceedings. There are exceptions, but this is the standard way retirement plans are viewed.
How Retirement Plans Are Divided in Illinois Divorce
The retirement plan is considered marital property, but it can be divided in one of two ways. One option is for the interest to go to one party and property with a value that offsets the retirement fund go to the other. For example, if the family home is worth the same amount as the retirement plan, one party could take the home and the other the retirement plan.
The other option is to have the two parties divide the retirement plan interest. This requires a document called a Qualified Domestic Relations Order.
Retirement Plans That Started Before the Marriage
Sometimes people are confused by retirement plans that started before the marriage. In these instances, the portion of the retirement plan that was funded during the marriage is considered marital property. So, if the party had the retirement plan for 20 years, and was only married for 15 of those years, then the 15/20 or ¾ of the interest would be marital property. The remaining ¼ would be non-marital property.
Protocols for Dividing Retirement Assets
A few protocols are necessary when dividing retirement assets during divorce. First, these assets are divided based on percents, not dollar values. This ensures the division is fair, even if the asset’s value changes as market changes. Second, no transfer of funds can be made until the divorce is finalized. If a party tries to move funds, they could lose some value through early withdrawal penalties. Working with a high net worth divorce attorney will help individuals ensure they are following these protocols correctly and avoiding the risk of high tax assessments.