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What happens to pension plans in a divorce?

On Behalf of | Jan 23, 2023 | Division of Assets, High-End Divorce

Divorces can be complicated in Illinois, and dividing assets, such as a pension plan, can be one of the most challenging aspects of the process. A pension plan is a retirement savings plan designed to provide income to an individual after they retire. It can be a significant asset that must be divided during a divorce.

Dividing assets

In a divorce, a pension plan is considered a marital asset, which means that it is subject to division between the two parties. The process of dividing a pension plan in a divorce is called a “qualified domestic relations order” (QDRO). A QDRO is a legal document that a judge creates and it outlines the terms of how the pension plan will be divided.

Ways pension plan can be divided

There are several different ways that a pension plan can be divided in a divorce. One option is for the plan to be split equally between the two parties.

Another option is for one party to receive a larger portion of the plan, with the other party receiving compensation for their share in other assets. A court may be called upon to consider factors such as the length of the marriage, the earning potential of each party and the age of the parties when determining how to divide the pension plan.

Tax implications

It’s also important to consider the tax implications of dividing a pension plan. The distribution of a pension plan can be subject to income tax, and it’s important to understand how the distribution will affect the tax liability of each party.

Dividing your pension plan during a divorce

When deciding to permanently separate from your spouse, dividing your pension plan in a divorce can be a complex process. A QDRO outlines how the pension plan will be divided so that the process is as fair and equitable as possible. Factors such as tax liabilities and the nature of the plan itself can present challenges that need proper communication between the parties.