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Avoiding Common Mistakes When Dividing a 401K in Divorce

Posted on in Property Division

Illinois divorce lawyersYou may have years, perhaps even decades until your retirement, but you are going through a divorce, the time to start thinking about your nest egg is now! Often one of the more valuable assets in a marital estate, retirement and pension accounts are the primary source of contention in approximately 60 percent of all high-conflict divorces. It is also one of the most complex assets to divide in divorce, and mistakes are both costly and exceedingly common. Learn how to avoid them, and discover what a seasoned divorce attorney can do to help.

Retirement Plan Types - Why It Matters

Not all retirement plans are the same, especially when it comes to dividing them in a divorce. Pension plans and 401K plans must be divided using a qualified domestic relations order (QDRO). This document, though based on the details of your divorce decree, is actually separate from your agreement, and it should be treated as such. It is a specialized legal area - and not all divorce attorneys have experience with them, so be diligent in your search for one. 

Individual retirement plans (IRAs) do not require a QDRO for division, but there are hefty penalties associated with an early withdrawal. If the plan is transferred trustee-to-trustee in a divorce, those penalties are waived. Just make sure that the division is included in the divorce decree. Otherwise, the custodian of the account cannot exempt the division and it becomes a taxable event for the IRA’s original owner.

Divorce and Retirement Account Withdraws

Retirement plans are meant to be a nest egg for your retirement, but if either party does want to withdraw from it to obtain a liquid settlement during the divorce, it is critical that you seek guided legal assistance with the process. One mistake can have staggering consequences. For example, if the owner of the account withdraws the amount for their spouse prior to the divorce, it may not be listed in the decree. Instead, the judge may consider it a gift. Because of this, the account owner would be subject to the 10 percent early withdrawal fee and IRS taxation.

Contact Our DuPage County Divorce Lawyers

If you are filing for divorce and have a nest egg, protect your part of the investment. Contact Davi Law Group, LLC and obtain the skilled legal assistance that you deserve. Dedicated to your best interests, our DuPage County divorce lawyers offer personalized, comprehensive family law services to suit your needs. Call 630-580-6373 to schedule your consultation with us today. 

Source:

https://www.cnbc.com/2018/03/07/dividing-401k-assets-in-divorce-can-be-an-expensive-minefield.html

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