Creating a financially secure retirement takes much more than just tucking away a bit of money for a few years. Adults in Illinois spend decades growing their retirement accounts through both personal and employer contributions. The idea of compromising those savings might feel out of the question, but it is an unavoidable issue during divorce. Here are a few things one might expect when dividing a 401(k) account.
Establishing when the account was opened is crucial. Barring a prenuptial agreement or extenuating circumstances, income earned by either spouse during marriage is considered marital property, which must be divided during divorce. This includes contributions to retirement accounts. If the 401(k) was created prior to marriage, the original balance at that time is generally considered separate property. Furthermore, the marital funds from the 401(k) will likely be split according to each person’s financial contributions rather than in an equal split.
Couples have more than one option for transferring the funds from a fair division of retirement savings. A Qualified Domestic Relations Order issued by the court gives one person the opportunity to move retirement funds from one person’s retirement account to the other’s without having to pay any penalties. It is also possible for one spouse to simply pay the other a lump sum equal to his or her portion of the retirement funds. This helps preserve retirement savings while also satisfying property division obligations.
Saving enough money for retirement requires a strategic approach, and one might find him or herself disheartened to learn that divorce will likely affect 401(k) accounts. One of the best ways to ensure that these types of accounts are treated as fairly as possible is to learn as much about the process as possible. This may be more easily accomplished when speaking with an attorney who is well-versed in Illinois family law.