Many Illinois residents rely on their retirement savings to serve as a primary source of income once they stop working. Retirement accounts are generally subject to property division proceedings in divorce, which means that they can be valuated and distributed with other marital assets. Understanding how various types of retirement accounts are identified and divided under the law can go a long way to help ensure that people’s long-term savings are protected after divorce.
According to Zacks.com, Illinois is considered an equitable distribution state. This means that the division of marital property is intended to be equitable, but not necessarily equal between divorcing parties. In cases involving the division of retirement accounts, however, it is noted that they are generally split in half. The portion of retirement savings that was developed during the course of the marriage, and is therefore identified as marital property, may be subject to equal division. However, the way in which retirement accounts are distinguished can also have an impact on how they are divided and valued.
Investopedia explains, for instance, that IRA accounts and 401(k) savings are divided differently in property division proceedings. 401(k) plans are subject to Qualified Domestic Relations Order guidelines, while IRA accounts are distributed according to “transfer incident to divorce” practices. The distinction between the ways in which retirement savings are divided can have a significant impact on how taxes and other processes are applied. For instance, the mislabeling of an IRA account could result in early withdrawal fees and other avoidable expenses.