Many Illinois couples have two major assets: a home and a retirement account. After spending years carefully tending to each of them, some of those couples may face dividing them in a divorce. Just as the family home may require special treatment, so does a work-related retirement account.
It could take a significant amount of time to negotiate a settlement regarding a retirement account. Once an agreement is reached, the parties may believe that the work is done. That would more than likely be a costly mistake. In order to avoid paying tax penalties on any amount taken out of the account in accordance with the divorce settlement, additional work needs to be done.
Illinois couples splitting their retirement accounts in divorce may obtain a qualified domestic relations order to avoid paying certain tax penalties. However, before seeking this order from the court, it is important to discuss the matter with the plan’s administrator. Many plans have specific requirements when it comes to QDROs, and failing to account for these requirements could be expensive. It should also be noted that each retirement account divided in the divorce needs its own QDRO.
These documents must contain specific information in order to be effective. For this reason, it would probably be of great benefit to involve an experienced divorce attorney in the process. A thorough review of the proposed order could help ensure that all of the necessary information is included in it to provide the best chance that it will do its job when needed. Without a doubt, divorce will affect the financial lives of each party, and doing everything possible to minimize that impact could help each of them to move forward with the best possible chance at a secure financial future.
Source: king5.com, “How to avoid mistakes dividing up 401(k) assets in divorce“, Sarah O’Brien, March 7, 2018