top of page
Search

Dividing 401(k)s, IRAs and Annuities in Divorce

  • Writer: Angela Larimer
    Angela Larimer
  • May 20, 2021
  • 2 min read

If you want to learn more about dividing 401(k)s, IRAs, and Annuities during a divorce in Chicago, Illinois, contact Family Law Attorney Angela Larimer at 773-370-0600.


When dividing assets like 401(k)s, annuities, and IRAs during a divorce, it is important to understand that transfers made between spouses as an incident to divorce are tax-free. To learn more about dividing these types of assets in a divorce and leverage assets as negotiating and settlement strategies, divorcing couples in Chicago can contact Family Law attorney Angela Larimer at 773-370-0600.


Dividing 401(K)s

Separate from a divorce decree, a court order known as a Qualified Domestic Relation Order (QDRO) is a key requirement when it comes to dividing 401(k)s. A spouse is entitled to all or a portion of a 401(k). The QDRO confirms each spouse's right to his or her portion of the money.


Each plan comes with unique administrative guidelines and provisions for benefits. However, many divorce lawyers advise divorcing couples to reach an amicable agreement when dealing with 401(k)s. The following are options available to divorcing spouses:

  • One spouse retains the 401(k) in return for another equally valued asset. While this is the least difficult approach, it involves difficult calculations and in-depth negotiations to resolve growth potential.

  • Splitting the 401(k). Many spouses choose to split the 401(k) into two accounts. This enables each account holder to continue to contribute to and manage his or her own funds. However, the recipient spouse cannot make additional contributions to his or her account directly.

  • Cashing out a portion of the 401(k) to pay the other spouse. This option requires legal approval, but with the QDRO, the spouse who owns the account would avoid early withdrawal penalties on the distribution.

  • The 401(k) rollovers. Some spouses choose to roll the other spouse's portion of their 401(k) into an IRA. With this option, both the account holder and the recipient avoid tax liabilities until the funds are withdrawn, but they may be required to pay a one-time rollover fee.


Dividing IRA Assets

The best way to split an IRA is to perform a trustee-to-trustee transfer, where assets are moved from the IRA of one spouse to the account of the other spouse. This approach is advantageous because it allows the IRA owner to avoid taxes and the 10% early distribution penalties.


Dividing Annuities

Annuities are some of the assets that many divorcing spouses tend to forget during a divorce. The following may be options for splitting annuities:


Withdrawal

This option involves withdrawing either a part or all of an annuity and then distributing it to both spouses directly.


Transferal

This approach involves having awarded amounts moved directly to the recipients via an IRA account.


Starting a New Contract

This option involves withdrawing from an already existing contract and starting two separate contracts for both spouses.


Transferring Ownership

This option doesn’t divide an annuity between two spouses. Instead, it awards all rights and administration of an existing annuity to one spouse for a new annuity contract to come into effect.




 
 
 

Комментарии


      LARIMER LAW, LLC

4801 W Peterson Ave., Suite 414
Chicago, IL 60646

Office: 773.902.0200

angela@larimerlawllc.com

www.larimerlawllc.com

A Law Firm Devoted Exclusively to Family Law Issues
  • Instagram

Have Questions? 
Contact us at 773.902.0200
angela@larimerlawllc.com

Leading Lawyers Peer Selected 2025

Subscribe to our newsletter 

Thanks for subscribing!

Disclaimer: The Supreme Court of Illinois does not recognize certifications of specialties in the practice of law and the certificate, award or recognition is not a requirement to practice law in Illinois. The information on this website or information provided via Website Alive electronic chat application is and shall be for general purposes only and should not be interpreted to indicate a certain result will occur in your specific legal situation. The information on this website is not legal advice and does not create an attorney-client relationship.

©2024 Larimer Law LLC | 4801 W Peterson Ave., Suite 414  Chicago, IL 60646

bottom of page