When Is a QDRO Used in an Illinois Divorce?

 Posted on April 14, 2023 in Divorce

Getting a divorce can be a tough process, including emotionally and financially. Even after the  divorce is finalized, sometimes certain financial issues can linger for years if they were not addressed properly during the divorce process. One aspect of the financial side of a divorce which spouses in Illinois should be aware of is called a QDRO, which many times is used to divide retirement benefits. By understanding when a QDRO may be used and how it can affect your financial future, you can make sure you are taking the correct steps to protect your interests, and avoid potential complications down the line.

What Is a QDRO?

A QDRO, or Qualified Domestic Relations Order, is a court order that allows for the division of certain types of marital property. These types of orders will typically be used when dividing retirement benefits, including certain types of retirement savings accounts and pension benefits  which a person is eligible to receive after their retirement. Without a QDRO, a division of retirement benefits might result in unnecessary taxes, penalties, or other complications.

When Are QDROs Used?

A QDRO may be used if a spouse has participated in an employer-sponsored retirement plan, and the funds in that retirement account will be divided between the spouses as part of the divorce settlement. 401(k) accounts and other types of tax-deferred retirement accounts oftentimes may be divided between spouses in a divorce, and when a QDRO is provided to the administrator of a retirement plan, funds may be withdrawn from an existing account and transferred to an alternate payee, the spouse. It should be noted that QDROs may not be used for certain types of accounts, including individual retirement accounts (IRAs). Funds in an IRA may instead be withdrawn using a "transfer incident to divorce," which will be similar to, but not the same as, a QDRO.

Pension benefits may also be divided using a QDRO. For spouses who are employees of the State of Illinois and are eligible to receive benefits through the state's pension program, a similar court order called a Qualified Illinois Domestic Relations Order (QILDRO) must be used to divide those benefits. In these pension situations, a QDRO or QILDRO will state that a certain amount of pension benefits (usually specified as a percentage) will be paid to the pension holder's ex-spouse after the employee retires.

What Are the Benefits of Using a QDRO?

Dividing retirement assets with a QDRO can provide a number of advantages, including:

• It ensures that taxes or penalties will not apply to retirement funds that are withdrawn and transferred to the other spouse before the account holder reached the age of retirement (59 1/2 in most cases);

• It ensures that the spouse receiving the funds has access to money and control over their own assets without having to wait for the other spouse to retire; and,

• It allows for the quick and simple transfer of retirement funds, without the need for additional legal fees or complications.

Contact Our Oak Park Retirement Asset Division Attorney

For divorcing spouses, determining how to divide retirement accounts, pensions, and other assets can sometimes be complicated. It is important to make sure that these issues will be addressed legally correctly to avoid unnecessary fees, penalties, or taxes, and to ensure that you will have the financial resources you need in the future. At Law Office of Vincent C. Machroli, P.C., our Hillside property division lawyer can advise you of your options for dividing retirement benefits, and we can provide high-quality legal assistance in creating and getting QDROs approved to ensure that these assets can be transferred or allocated correctly. To learn more about how we can assist with any financial concerns during your divorce, contact our office at 708-449-7404 and arrange for a free consultation.

Sources:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qdro-qualified-domestic-relations-order

https://www.investopedia.com/personal-finance/whats-qdro/

https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=004000050K1-119