Will I Need a QDRO to Divide Retirement Assets During My Divorce?
Married couples who choose to get a divorce will need to address many different legal and financial issues related to the income they earn and the property they own. Determining how to divide marital property can often be a complex process, especially for couples who own significant assets. In addition to dividing physical property and financial accounts, couples may also need to address retirement savings and pension benefits. When dividing certain types of retirement assets, couples will want to use a Qualified Domestic Relations Order (QDRO).
What Is a QDRO?
A Qualified Domestic Relations Order is a court order that instructs the administrator of a retirement plan to make payments to someone other than the plan holder. QDROs can be used to divide the funds in certain types of retirement savings accounts and to allocate pension payments.
A QDRO is usually used with retirement savings plans that are covered by the Employee Retirement Income Security Act (ERISA), such as a 401(k) account. If a couple agrees in their divorce settlement that the funds in a 401(k) that is in one spouse’s name will be divided equally between the spouses, a QDRO can be used to withdraw half of the funds and pay them to the other spouse. When using a QDRO, penalties for withdrawing funds before reaching retirement age will not apply, and taxes will not need to be paid, as long as the payee deposits or rolls over the funds into a retirement account in their name. For retirement accounts such as IRAs or SEPs, a QDRO will not be needed, and funds can be allocated using a “transfer incident to divorce.”
QDROs can also be used to divide pension benefits, and for pension plans operated by the State of Illinois, spouses will need to use a special type of QDRO known as a Qualified Illinois Domestic Relations Order (QILDRO). Unlike retirement accounts, which have a known balance that can be divided between spouses, the benefits a person will receive through a pension may not be known at the time of a couple’s divorce. To ensure that these benefits can be divided fairly, a QDRO or QILDRO may state that a certain percentage of the benefits will be paid to the alternate payee (the plan holder’s ex-spouse) once the person retires and begins receiving pension payments.
Contact a Plainfield QDRO Attorney
Retirement savings and benefits are just one of many issues that you may need to address during your divorce. Making the right decisions during the divorce process can ensure that you will be protected financially, providing you with the resources you need to succeed in the years to come. At the Law Offices of Tedone & Morton, P.C., we can advise you of your rights, help you understand the legal issues you will need to address and advocate for your interests throughout the divorce process. Contact our Will County property division lawyers by calling 815-666-1285 or 815-733-5350 to schedule your free consultation.
Sources:
https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=075000050K503
https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=004000050K1-119
https://www.thebalance.com/how-retirement-plan-assets-are-divided-in-a-divorce-1289260
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