Asset division in divorce can be complex, particularly when it comes to retirement funds. A QDRO (Qualified Domestic Relations Order) is a critical tool for the equitable distribution of retirement funds in divorce proceedings. This guide demystifies QDROs in Illinois.
What is a QDRO?
As a legal document, a QDRO details one ex-spouse’s rights to a portion of the other's retirement plan.
For disadvantaged spouses in divorce, having a QDRO in place is essential. It can help protect the disadvantaged person by providing a roadmap for dividing retirement assets while minimizing potential disputes and tax burdens.
How do QDROs work in Illinois?
A QDRO includes instructions on how to divide a tax-deferred account such as a 401(k) or pension plan. Pertinent details (like the marriage date) are ty pically required.to complete the form, as these help determine the marital portion of the account.
One significant advantage of a QDRO: It allows divorcing spouses to avoid an unwanted tax event. Without a QDRO, the spouse receiving a portion of the retirement savings (the payee) could be subject to tax penalties.
Can an Illinois court divide a retirement plan in divorce?
An Illinois court can divide a qualified retirement plan in a divorce. Retirement accounts are considered marital property. Thus, they are subject to equitable distribution during divorce proceedings.
Typically, the portion of the retirement account that was accumulated during the marriage is considered marital property, or community property.
Read about Illinois marital settlement agreements, child support, alimony, and a lot more in our article Everything You Need to Know before Getting Divorced in Illinois.
What types of plans do QDROs cover?
Here are some of the retirement plans QDROs typically cover:
Defined contribution plans
These include 401(a), 401(k), 403(b), and 457 plans. A QDRO may assign rights to either a portion or the entirety of the account balance to an alternate payee.
Defined benefit plans
These are traditional pension plans where the retiree receives a specific amount regularly upon retirement. A QDRO can specify that a portion of each installment be given to an alternate payee.
These plans allow employees to share in the profits of the company. A QDRO can assign a portion of the benefits owed to the employee to an alternate payee.
Employee Stock Ownership Plans (ESOPs)
This type of plan account gives plan participants an ownership interest in the company. A QDRO can divide the benefits from an ESOP.
Money purchase plans
These are similar to defined contribution plans, but the employer's contributions are fixed rather than based on the company's profits.
It's important to note that QDROs do not apply to all types of retirement benefits. For example, Individual Retirement Accounts (IRAs) are not typically divided using a QDRO. Instead, they are often split using a process known as "transfer incident to divorce" in the property settlement.
Helpful: QDRO Glossary
When and how to file a QDRO in Illinois
Ideally, the QDRO should be filed at the same time as the divorce decree. This is because the valuation of retirement accounts can fluctuate, and having a legally binding order can prevent future disputes. However, there's no strict time limit on how long after the divorce you can file a QDRO. Timeliness is crucial, though, as delays could potentially affect the division of assets.
The QDRO cost will vary. In general, filing fees are minimal, especially if the QDRO was part of the divorce process. What's more costly are the attorney fees to draft it and plan administrator fees, when applicable.
Can Hello Divorce help me file a QDRO?
Yes, Hello Divorce has a mission to make divorce accessible and affordable for everyone. Our partnership with QDRO Counsel gives you access to affordable legal support. Through this service, you can have a QDRO drafted for your needs.
Hello Divorce also offers flat-rate legal advice. This gives you the chance to speak with attorneys who can answer your questions and take on your case if needed.
Read about Illinois marital settlement agreements, child support, alimony, and a lot more in our article Everything You Need to Know Before Getting Divorced in Illinois.