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During a divorce, any retirement account either spouse holds is subject to property division proceedings. These funds are some of the most difficult to divide and the process can sometimes be lengthy. These funds also require a court order that is separate from the divorce settlement agreement. To ensure that these assets are divided properly, individuals must work with a family lawyer that is familiar with how these assets are divided, and that can help you navigate through the process.
Only marital property, which is property that was acquired by the couple during the marriage, is divided during a divorce. This concept can become complex when dividing retirement funds because in many instances, a person has acquired some of their funds prior to the marriage, but continued to build the retirement fund after they were married. As such, a portion of those funds are considered separate property and the remaining funds are considered marital property. The first step then, when dividing retirement funds, is to determine how much of the account is considered marital property.
All divisions of retirement funds require a Qualified Domestic Relations Order (QDRO). This lengthy document will detail how much of the retirement fund each spouse is entitled to receive after the divorce, as well as a number of other details. To begin the process, it is essential to work with a divorce lawyer that can contact the administrator of the plan. There are a number of specific steps that must be taken when dividing these funds, and your lawyer and the plan administrator will work together to ensure those steps are followed properly. The administrator must also approve the QDRO before it is submitted. The funds cannot be transferred until the administrator has approved the QDRO.
Due to the nature of retirement funds, it is essential that a spouse’s portion is identified as a percentage rather than an amount. It can take a great deal of time between submitting the QDRO and when the funds are actually distributed. During that time, the market may fluctuate up or down. So, if a QDRO states that a spouse is to receive $50,000 rather than 50 percent of a fund that is currently valued at $100,000, that spouse may receive more or less than they are actually entitled to.
Spouses receiving a portion of a retirement fund have a couple of options on how they can do it. A spouse can roll their portion of a retirement fund into their own IRA, in which case that portion of the fund is not taxable. A spouse can also choose to receive the money directly. In this case, the funds are taxable, but the spouse does not have to pay the ten percent penalty for early withdrawal of the fund.
Retirement funds are some of the most complex aspects of a divorce, and it is crucial that you work with a dedicated Hinsdale divorce lawyer that is familiar with the process. At the Law Office of Martoccio & Martoccio, we have the experience and knowledge necessary to advise on how your retirement fund, or your spouse’s, will be divided during your divorce and help you through the process. If you are getting a divorce, call us today at 630-920-8855 or contact us online to schedule a free consultation with one of our attorneys.