Wondering How Retirement Money will work in Divorce? Its complicated but you must understand the basics

      Throughout the course of many marriages, at least one spouse has usually opened a retirement account such as a 401k, an IRA, or a company pension.  Just because they are individually named accounts does not mean that they will belong only to the person whose name is on them in the case of a divorce. Remember, anything that was acquired during the marriage is marital property and retirement accounts are no exception.
     In Illinois, usually the retirement earned during the marriage is split 50/50. Once it has been agreed (or decided by a judge) who is entitled to what percentage of the retirement money, the next thing to decide is exactly how that will be accomplished.  Sometimes, there are other assets that can be used to offset the retirement. For example, let's say that all of the retirement money is marital (none earned before the marriage) and husband's retirement is in a defined contribution plan like a 401k and is worth $80,000 and wife's 401k is $60,000. Wife is entitled to $40,000 of his, and husband is entitled to $30,000 of hers. So they will each end up with $70,000. To accomplish this then, wife can just keep her own and take $10,000 of husband's retirement.  Now let's assume that the couple will also be selling their house and will be getting $40,000 from the sale of which they agreed to each keep $20,000. Wife could take $30,000 and husband could take $10,000 as a way of paying wife for the difference in the retirement accounts, leaving both retirement accounts intact whereby husband keeps his $80,000 and wife keeps her $60,000- the difference being made up for at the time the house is sold. This is beneficial to the wife if she needs the $10,000 sooner rather than later and it also avoids the additional administrative expense and legal fees associated with getting a QDRO (pronounced Quad-row).
    QDRO stands for Qualified Domestic Relations Order which is an additional divorce document that will be signed by the judge and has to be approved by the financial institution that administers the retirement account. It is essentially a written set of instructions from the court to the plan administrator about what needs to be done with the retirement account. Usually a new account gets set up for the ex-spouse who they call the "alternate payee". The QDRO's should be entered at the time of the divorce or as soon as possible afterwards, unless the couple is using the offset method like in the example that I gave about the house.
    This is a very basic overview of how retirement often works in divorce but sometimes it gets a lot trickier depending on the type of account (some should to be valued professionally). There are also other considerations besides how much each person gets, like what happens to survivor benefits and the like. Don't let this scare you, it is just important to understand that these issues do exist and to make sure that retirement accounts are a) properly valued and b) that QDRO's are done correctly by someone who knows what they are doing, with the language that is most beneficial to you. 
   I hope that this helped you to understand a little bit more about how retirement is dealt with in divorce. 
Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Bankruptcy, Injury, Real Estate & Mediation