Many divorcing couples in Illinois focus on issues such as who gets custody of the children and who gets the house. Unfortunately, retirement decisions are often overlooked or not given sufficient consideration. Even if parting spouses are years away from retiring, there are issues related to this type of savings that could create some unpleasant financial woes later in life.
For instance, even though an IRA is for one individual party, its related assets are often considered marital property. Marital assets can also include retirement assets in the form of pension plans. In some cases, the portion of a pension that was earned prior to marriage could still be lumped in with other marital assets. However, there are ways for a divorcing spouse to keep their pension plan intact by offsetting it with other assets.
With Social Security benefits, some of the rules that apply to married couples may carry over into divorce. For example, a divorcing spouse who was married at least 10 years is entitled to half of their ex’s Social Security benefits or their own benefits, whichever is higher. The other spouse still keeps their full benefits. This stipulation is based on established Social Security rules, so such benefits cannot be part of a settlement agreement. However, soon-to-be ex-spouses can use a Qualified Domestic Relations Order (QDRO) to divide qualified pension or retirement accounts during a divorce.
A divorce lawyer may bring in an accountant or financial adviser to help a client properly size up retirement assets. One of the main benefits of including a QDRO in a settlement is the ability to allow a retirement account to be separated without penalty. But if an attorney drafts a QDRO, it will need to be shown to the pension plan administrator before the divorce is finalized.