How Does Divorce Affect Retirement Accounts and Pensions?

How Does Divorce Affect Retirement Accounts and Pensions?

Divorce often involves complicated financial decisions. Several aspects of divorce carry long-term consequences, including the division of retirement accounts and pensions. These assets often represent years of hard work and planning, which means understanding how they’re affected by divorce is essential. At SAM LAW OFFICE LLC, we know the financial stakes involved and are here to help you safeguard your future while navigating the complexities of retirement asset division.

Understanding Marital and Non-Marital Assets

When dividing retirement accounts and pensions, Illinois law classifies all property as either marital or non-marital. Generally, contributions made to a retirement account during the marriage count as marital property, while those made before marriage remain non-marital. However, tracing pre-marital contributions and determining how much growth occurred during the marriage can complicate matters.

For example, if you had a 401(k) before marriage and continued making contributions during the marriage, only the portion contributed after the wedding — along with the earnings on it — may be subject to division. The division of these assets can significantly impact your financial security, making it crucial to have an experienced attorney protect your interests.

Different Retirement Accounts and Division Methods

Retirement accounts and pensions come in various forms, and each is treated differently in a divorce. Here is a closer look at the most common types:

401(k)s, IRAs and Other Defined Contribution Plans 

Defined contribution plans like 401(k)s and IRAs are the most common retirement accounts. The court typically divides the marital portion of these accounts equitably between spouses. This process often requires a Qualified Domestic Relations Order (QDRO), a legal document specifying how the account will be split without triggering early withdrawal penalties or taxes. 

Pensions and Defined Benefit Plans 

Pensions, unlike 401(k)s, provide a fixed payment upon retirement and are categorized as defined benefit plans. If all or part of the pension was earned during the marriage, it will likely be divided as marital property. The division method varies, but courts often order payments to a former spouse after the pension holder retires. A QDRO may also be needed here. 

Roth IRAs 

Roth IRAs, like other individual accounts, may require division depending on when the contributions and earnings accumulated. The process can be more intricate due to tax liabilities once distributions begin. 

The Division Process in Illinois

Illinois uses equitable distribution laws, meaning property is divided fairly but not necessarily equally. This approach considers factors like each spouse’s financial situation, earning potential and the duration of the marriage. Contributions made during the marriage usually end up equally divided, but pre-marital contributions are protected as non-marital property. 

Hiring a divorce attorney who understands the nuanced rules of property division is crucial to preserving your rights and securing your financial future. At SAM LAW OFFICE LLC, we are experienced in complex property division cases and work meticulously to protect the retirement assets you’ve worked so hard to build.

Take Control of Your Financial Future

Dividing retirement accounts and pensions during a divorce can feel overwhelming, but you don’t have to face it alone. The legal team at SAM LAW OFFICE LLC is dedicated to guiding you through these challenges. We’ll advocate for your rights so your assets are divided fairly and justly. Contact us today for a free consultation to discuss your options and protect your financial future.