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Divorce and 401(k): What You Need to Know in Chicago, Illinois

On Behalf of | Jan 18, 2023 | Division of Assets, High-End Divorce

Many people participate in 401(k) plans at work, making it one of their most valuable assets. When a couple decides to divorce, their 401(k)s play a significant role in the divorce settlement or court order. Here are the details about dividing assets/pensions in a divorce.

How does divorce affect a 401I(k)?

A 401(k) is owned privately. Couples’ retirement plans, as well as their other assets, may be divided. A qualified domestic relations order (QDRO) usually divides 401(k) assets.

It may be important to consider your state’s laws when you divorce, particularly if you let the judge decide the division of assets/pensions. States that follow community property rules divide assets equally. 401(k) contributions made before marriage aren’t marital assets. States following equitable distribution rules divide assets fairly; this is not necessarily 50/50.

How QDROs work

The spouse receiving a share of the other spouse’s 401(k) is called an alternate payee. They have several choices based on the QDRO language. It may provide a “shared payments” or “separate interest” agreement. Shared payments divide each disbursement proportionately between the two spouses.

401(k) accounts with separate interest arrangements are divided fairly. Another QDRO account can be opened for the alternate payee. Through these arrangements, alternative payees can receive benefits when they want. It can also be rolled over into a retirement account owned by them.

How does divorce affect a traditional pension?

The rules for defined-benefit pensions are the same as for 401(k)s. However, splitting up a pension can be difficult and needs a specialist.

That’s what you need to know about divorce and 401(k)s in Chicago, Illinois. The retirement contributions you make after getting married affect your spouse’s payout, so consider that as you decide how to divide it.