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  • Writer's pictureAngela Larimer

Understanding Dividing Retirement Benefits

Retirement Accounts (IRA), Pensions Plans and 401(k) and 403(b):

Individual Retirement Account (IRA) is a savings account for individuals with tax advantages to save and invest for long term planning. Similar to a 401(k), an IRA is specifically designed to encourage individuals to save for retirement.

A 401(k) is a retirement savings and investing plan offered by many employers. It provides a tax break for employees on the money they contribute. Contributions are automatically withdrawn from paychecks and invested into select available funds.

A pension and a 401(k) are both employer-sponsored retirement plans for employees. The most significant factor that differs between the two is that a 401(k) is a defined-contribution plan and a pension is a defined-benefit plan. A 403(b) plan (a tax-sheltered annuity plan), is a retirement plan for certain employees of public schools, employees of certain Code Section 501(c)(3) that are tax-exempt organizations and some ministers. A 403(b) plan allows employees to contribute some of their salary to the plan and employers may also contribute to the plan for employees.

What is Important to Know During a Divorce? During a divorce, retirement accounts and pension divisions can become a significant issue. Often the pensions and retirement plans are the parties’ largest assets. At times there are marital and non marital portion in one account. If a party worked at a job before the marriage, those accumulated values are considered non marital. The accumulated value after the marriage is deemed marital. Often actuaries are used to calculate the values as the actual non marital contribution may “grow” with interest during the marriage. The interest value must be determined by an actuary.

There is a common misconception that if a pension plan is solely in one individual’s name, that the pension is solely the account holder’s asset. That is not correct. Equitable division of retirement assets (in addition to other assets), requires careful consideration of the factors in §503(d) of the Illinois and Dissolution of Marriage Act regarding pensions and divorce in Illinois. All factors are to be considered during the division of assets.

Qualified Domestic Relations Order (QDRO)

Retirement accounts are typically divided by a Qualified Domestic Relations Order (QDRO). A Qualified Domestic Relations Order (QDRO) is a court order or decree that requires a portion of an individual's retirement plan to be assigned or paid to another person (either a spouse or dependent).

Different rules can apply for dividing assets depending on the specific type of retirement plan. QDROs are used for 403(b)s and other qualified plans such as a 401(k) but another process called Transfer Incident to Divorce would be used for Individual Retirement Accounts (IRA). The Transfer Incident to Divorce paperwork is typically issued by the 401k Plan Administrator and the domestic relations attorney fills out the form and ensures it is approved by the Plan Administrator.

If you would like to understand more about Diving Retirement Benefits, call Chicago Family Law Attorney Angela Larimer at 773-370-0600 or email Angela at for assistance.

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