How Are Retirement Accounts Divided in a Divorce? | Learn About Law

In this episode of Learn About Law, we talk about how retirement accounts are divided in divorce. Kevin OFlaherty of OFlaherty Law explains the division of retirement accounts such as IRAs, 401(k)s, and pensions in Illinois divorce. #Retirement #Divorce #IllinoisDivorce

Halloween bl tv program is brought to you by o’flaherty law please enjoy welcome to learn about law my name’s kevin o flaherty from o’flaherty law and today we’re going to discuss how retirement accounts like iras and 401ks are divided in a divorce let’s first talk about the concept of marital assets versus not marital assets the assets that are actually divided

In illinois divorce are marital assets assets that just the person who owned them before the divorce keeps our non marital assets so just like any other s that we need to determine whether a retirement account is a marital asset or a non marital asset retirement accounts act differently than other assets in this way and that part of the account can be considered

A non marital asset while another part of the account part of the value of the account can be a marital asset and here’s how that works any account value accrued prior to the marriage is a non marital asset so the person who owns the account gets to keep that portion of the value free and clear it’s not going to be divided as part of the marriage any account value

Accumulated after the marriage is a marital asset that has to be divided so this is strange because the account is at the same time both the marital and now marital asset part of the value of it is not marital part is marital so how is the marital asset portion divided illinois is an equitable division state meaning that everything is not 50/50 we take a look at

Several different factors and the court decides a fair way to divide it thus equitable division some of the factors courts look at our the standard of living during the marriage the length of the marriage the needs of each party the income of each party and we have a whole video an article basically on how asset division works in those factors so you can check that

Out if you want to learn more but once we get to the determination of what part of the retirement account is marital that part is divided like any other asset according to those factors in the way that the court deems equitable now let’s talk about the nuts and bolts of how the division actually occurs this this is done through something called a quadro qdr oh

It’s called a qualified domestic relations order and this is a court order instructing the plan administrator on how to distribute the account the process is a little but complicated the quadro first has to be submitted to the plan administrator for approval then it goes back to the judge for signature and then it goes back to the plan administrator for execution

And what’s interesting is that sometimes depending on what is ordered by the court or agreed by the parties the portion that’s going to the person who doesn’t own the account the the spouse can be distributed immediately sometimes it can be distributed upon their retirement or reaching a certain age and so this quadrille can be in effect for a long time and the plan

Administrator is just instructed once we get to a retirement age the part of its gonna go to my spouse rather than just the the plan owner so what happens if it’s distributed immediately neither party pays the 10% penalty that you would normally pay for early distributions however the party receiving the distribution is going to pay income tax on that distribution in

The year that the distribution is received unless that person rolls it over into their own retirement account which they can do some special considerations that you have to think about when dividing retirement accounts as opposed to other assets in the divorce is one because there are sometimes some negative tax consequences to paying out a retirement account early

People in the divorce will often rather than just splitting the account offset the value of the account that would be distributed with other assets so rather than distributing part of the account to your spouse your spouse might get more of the savings account or they might get the house so that you don’t suffer the negative tax consequences of early distribution

Another thing to consider is that value of retirement accounts is difficult to pin down because they often own stocks that fluctuate from day to day so if you take the value of a retirement account on a certain day when dividing the account it and the account value changes greatly you know by 10 or 20 percent between that value is the 10 that value is calculated

And the time that the account is distributed according to that value one party stands to benefit to the others detriment based on the fluctuating value of the account so they’re there there’s some ways that we can figure that out and make that easier but that’s that’s definitely concerned when dividing retirement accounts and then not all retirement accounts are

Created equal not all retirement accounts that have the same dollar value are actually in reality worth the same amount because for example roth iras have already been taxed and you don’t pay taxes on distribution traditional iras have not yet been taxed but you pay taxes on distribution so the roth ira that has the same value as a traditional ira is actually

Worth more because you can’t get to the money in the traditional ira without paying taxes on it but you can with the roth ira so those are some basic considerations for retirement accounts if you have any questions or if you’d like to schedule a free consultation please give us a call at six three zero three two four six six six six if you have questions you can

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How Are Retirement Accounts Divided in a Divorce? | Learn About Law By Learn About Law