5 FAQs About Dividing Retirement Accounts in an Illinois Divorce

4 min readSep 18, 2023

Dividing retirement accounts during a divorce can be a complex and crucial aspect of the asset division process. To follow are answers to the top five questions that arise regarding dividing retirement accounts in an Illinois divorce.

1. How is retirement split in divorce in Illinois?

Retirement accounts contributed to during a marriage do not belong to only one party; rather, they are considered marital property that will have to be divided equitably in a divorce.

To divide retirement accounts in a divorce proceeding, Judges enter a Qualified Domestic Relations Order (or a “QDRO”) to do so. A QDRO allows the transfer of a portion of one 401(k) account into a separate retirement account established by the other party. Using the QDRO allows the typical 10% penalty for an early withdrawal to be waived. Alternatively, suppose the other party opts for a lump sum payment from the other party’s 401(k) account. In that case, the person receiving the funds as cash will have to pay the required taxes on the disbursement at the rate associated with their income tax bracket.

2. Do I have to give my wife/husband half of my retirement?

Illinois differentiates between marital and non-marital property in the division of assets. For retirement accounts, 401(k) earnings and contributions during the course of the marriage are considered “marital,” whereas 401(k) earnings and contributions before and after the marriage are considered “non-marital.”

Illinois is an equitable division State, which means that while divisions of marital property, including the marital portion of retirement accounts, are not presumed to be divided 50/50, in most cases, the assets do result in an equal split absent extenuating circumstances. These circumstances include situations such as the length of a marriage, the parties’ future earning capacity, a significant age difference, the amount of non-marital funds each party has, and others.

The division of the non-marital portion of a retirement account is different, though. Usually, the earner of the 401(k) will retain 100% of the nonmarital portion of the 401(k) earned before and after the marriage. If you have statements showing the balance of the 410(k) as of the date of the marriage, the interest accrued on the non-marital portions can be accounted for as well.

The 50/50 division of marital retirement accounts can be changed if the parties are able to agree upon a different arrangement. These outcomes are case-specific, and we recommend speaking with an experienced family law attorney to discuss whether this could be an option for you.

3. How can I avoid losing my 401k in divorce?

In a negotiation to reach a settlement, a party can try to protect their 401(k) by agreeing upon divisions of other assets or accounts. This can be favorable if people want to avoid certain tax consequences or penalties for disbursing from retirement accounts early.

For individuals who have not yet married, a prenuptial agreement is an option. A prenuptial agreement, or a “prenup”, allows parties to come to agreements before their marriage regarding the division of assets after the marriage. One asset that can be determined in a prenup is a retirement account.

For individuals who are already married, a postnuptial agreement may be an avenue to keep separate retirement accounts separate in the case of a divorce.

4. Should I cash out my 401k before divorce?

First and foremost, before pulling any money out of a 401(k) or other retirement account, it is important to recognize that doing so can result in tax consequences or penalties. Nonetheless, if a party pulls from their retirement account, that money will have to be accounted for, as it remains marital property regardless of whether it is in that retirement account or not.

Additionally, if a party tries to hide funds of any sort, including those from retirement accounts, their case can and will be severely impacted. Trying to hide money or other assets will backfire, and it will cause credibility issues in the case. Additionally, a Court may issue sanctions against such a party, meaning the party may have to pay a monetary penalty to the other party for these actions.

Rather than trying to hide assets from a spouse and causing severe damage to your case, it is always recommended to speak to an attorney about how to make the best argument to keep your retirement accounts or to divide them in a beneficial way.

5. Will I lose my ex-spouse’s retirement if I remarry?

Getting remarried after a divorce can be an exciting time, but it can also be a confusing time regarding what happens to any assets from a prior marriage. What happens with an ex-spouse’s retirement depends on many circumstances that are case-specific. For example, if you opt for a lump-sum payment at divorce, you will keep that lump sum. But what if you were getting social security benefits from an ex-spouse? Whether you can receive benefits from your ex-spouse’s social security benefits would depend on how the first marriage ended (death or otherwise) or whether the new marriage ends. Numerous factors can affect the answer to this question, so it is highly recommended to speak to an experienced Chicago divorce attorney to see what impact a new marriage may have on your retirement plans.

THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/blog/5-faqs-about-dividing-retirement-accounts-in-an-illinois-divorce/