If you are getting divorced or considering a divorce in Illinois and you have a 401K account, you will likely want to learn about the qualified domestic relations order. There are many benefits of a QDRO and depending upon your divorce settlement, you may be able to take advantage of this special type of order.
According to the U.S. Department of Labor, a qualified domestic relations order may be used to facilitate multiple types of financial transactions related to a divorce. One of the most times when a QDRO may be used is when two spouses must split one person’s 401K or other employer-sponsored retirement account. A QDRO can legally allow funds to be paid directly to the spouse who does not own the account. By bypassing the account owner, that person then avoid tax liability on the distribution. In addition, some penalties may also be avoided. The spouse who receives the money may not have to pay taxes if they reinvest the money into another retirement account.
This is not the only situation where a QDRO may help you, however. If you are required to pay child support or spousal support, you may use a qualified domestic relations order to allow you to access your 401K funds to satisfy these obligations.
This information is not intended to provide legal advice but is instead meant to help give divorcing Illinois residents an idea of how they may access 401K accounts to pay spousal or child support or how they can protect their retirement funds with a QDRO when splitting the account assets.