The divorce process can be different for people who are closer to retirement. Generally, older couples don’t have to worry about child support, since their children are now adults. However, they may be faced with splitting their retirement assets. In addition to the marital home, retirement accounts are often the biggest assets in a gray divorce. If you’re an Illinois resident, here are some important things you should know.
Splitting retirement accounts
The rules for dividing retirement assets in a divorce will differ depending on the account type. Transferring funds from a retirement account to an ex-spouse can have tax penalties if done improperly, so it’s important to get it right. You’ll need a qualified domestic relations order (QDRO) with respect to pensions or a 401(k) account in a divorce, but many couples are not aware of this.
Dividing assets with a QDRO
A QDRO recognizes that a divorcing spouse has the right to receive a portion of or all of the account owner’s pension or contribution plan.
There are two methods for dividing assets with a QDRO. The first awards a divorcing spouse a separate interest in the balance of the account. The second option allows a divorcing spouse to receive a share of the benefit payments. Once both parties agree to the regulations, the account owner will give the QDRO to the retirement plan administrator. Drafting a QDRO can be complicated, so it may be best to have an experienced attorney contact the plan administrator to provide model QDRO language to include in the divorce decree.
QDROs can’t be used for IRAs. If an IRA is to be divided, the terms must be outlined in the divorce agreement. The account owner will give the agreement to the IRA sponsor.