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Understanding the Basics
Illinois, unlike some other states, is a State that requires that marital property and marital debts be divided “equitably.” Equitable means “in fairness,” which generally means the distribution of assets and debts may or may not be exactly 50/50 for each spouse.
In determining what is equitable, courts consider the financial or other contributions each party made in acquiring the property during the marriage. Usually, courts also consider each party’s current financial status and the likelihood that each party may or could acquire additional assets in the future. The court can also consider whether a party has used marital income/assets for purposes that do not have anything to do with the marriage. The court will also consider the duration of the marriage and any provisions needed for any children of the marriage, among other considerations, in determining an equitable property and debt distribution between the parties.
Key Takeaways:
Pensions
In an Illinois divorce proceeding, pension benefits earned during the marriage are considered marital property and are subject to division between the parties. Generally, the court will divide the marital portion of a pension, which is the portion of the pension that is earned during the marriage, with the non-pension-participant spouse often receiving a share. Usually, this is 50% of the marital portion. This division is usually handled through a Qualified Domestic Relations Order (QDRO). Below, we explore how to calculate the allocation of a pension during a divorce.
Steps to Dividing a Retirement Account
The steps described below can be used to determine how to divide your retirement all the way to when it is to be allocated. Whether you currently have an attorney or are self-representing, these are the steps you will generally go through during the proceeding. If you have an attorney (which is a good idea), they can help you navigate through most of the steps or even complete some of them for you.
1. Determine Which Order You Need to Divide the Pension
Retirement division orders are the orders that dictate what will happen to any marital retirement accounts after the divorce. Generally, there are three types of orders that will each have different uses:
Qualified Domestic Relations Orders (QDROs): These orders are used to divide private company pensions, 401 (k) s, and other similar accounts.
Qualified Illinois Domestic Relations Orders (QILDROs): These orders, specific to Illinois, are more niche because they divide retirement and pension benefits only for Illinois government employees.
Military Retired Benefit Division Order: As their name implies, these orders divide military pay for retired veterans, such as pensions or Thrift Savings Plans (TSPs).
Most commonly, parties will use a QDRO, but be sure to seek legal advice to ensure you have the correct order for your specific situation.
Note that it is also important to understand that not all retirement plans will need an order to allocate funds. For example, IRAs may not need a specific order because the split-off portion can be put into a new IRA. Most importantly, be sure to speak with your IRA advisor about any potential tax consequences; however, your IRA will be split.
2. Determine What Portion is Considered Marital Property
Commonly, a portion of your retirement may not be non-marital property. If you had a retirement account before your marriage, this means that a specific portion doesn’t need to be divided. For example, a portion of your retirement can be considered non-marital if it was put into the account before the marriage.
Example A: Scotty and Joyce were married for 4 years, and Scott added to his 401(k) throughout the marriage and two years before the marriage (6 years total). Only 4 years (2/3rds ) of the contribution to the account is marital property. To determine this, you must have records proving the period during which funds were added to the account before and during the marriage. Also, any interest gained on the 1/3 of the account that is non-marital property is also non-marital, if and so long as you can accurately track it.
3. Determine What, if any, Part of the Account Will Be Transferred
Once you have a general understanding of how much of the retirement account is marital property and how much the account is worth, you can then decide what to do in terms of allocating the funds.
Example: Say Joe and Sally are married and getting a divorce, and the marital portion of Sally’s retirement account is $20,000. This means each party deserves $10,000 of that account. One party, in fact, may prefer to keep something else from the marital assets, like a car, worth a similar amount, rather than having their portion of the retirement distributed to them.
Also, consider that a portion of the retirement account only needs to be transferred if that account is actually being split. You only need to follow the above steps if an account is actually being split. You and your spouse have agreed that each of you will keep your own whole retirement accounts; they can simply state that is what they desire and have it included in the final divorce order.
You can use the online calculator below to determine what percentage of your total retirement contribution is marital property.
https://www.ajs.org/tools/illinois-divorce-pension-calculator/
4. Draft the Retirement Division Order
The final step is to draft the order dividing the retirement account. Whichever order is needed for your situation needs to be drafted and filed with the court. If you don’t have an attorney, you can seek legal counsel to help you through the divorce process and draft the order. Please seek the advice of an Attorney to better assist you in your unique situation.
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