For couples over 50 who have planned well for retirement, a pension plan, 401(k) account, or a traditional IRA or Roth IRA (Individual Retirement Account) is likely to be the largest asset that will be divided during divorce.
The average 50-55-year-old household has a little under $125,000 saved for retirement, according to CNBC. It is also one of the more complicated assets to divide, and most contentious, as the higher earning spouse may believe that these savings were earned solely by him or her. In fact, the percentage of retirement savings distributed to the lower earning spouse (if one of the spouses has earned less) depends on a variety of factors. These include the length of the marriage, what the lower earning spouse gave up in order to help build the career of the other, and the financial and non-financial contributions each spouse brought to the marriage, such as homemaking, raising children, etc.
It is common for couples who have been married in Illinois longer periods of time to have their retirement savings divided equally during divorce, because Illinois is an equitable distribution of property state. Assets are divided “fairly,” but not necessarily equally. However, alimony can help make up additional finances in the event the lower earning spouse does not receive an equal share of the retirement plan or other marital property.
Qualified Domestic Relations Order for Pension Plans or 401(k) Accounts
A qualified domestic relations order (QDRO) is necessary for the spouse whose name is not attached to a pension plan or 401(k) account. Not all divorce attorneys are familiar or experienced with QDROs, as this is not part of a divorce agreement. For every pension plan or 401(k), a separate QDRO document is needed.
Similarly, each QDRO needs to describe how and where the money is being transferred. Many choose to have 401(k)s rolled over into IRA accounts or Roth IRA accounts, where the account is taxed upfront so that no taxes need to be paid when assets are taken out.
If you choose to have the assets of a pension plan or 401(k) transferred directly to you, and bypass an IRA, income taxes must be paid, which can be significant. Choosing wisely during this process can break or save you, though in some cases the recipient may not have any choice but to take the money out, either due having a medical issue or other immediate financial need.
Contact a Divorce Attorney Today
Division of retirement accounts is complicated, and is something that should not be taken an alone or by an inexperienced attorney. For more information, contact the dedicated DuPage County divorce attorneys of Momkus McCluskey LLC. today to set up a consultation.