Zuba & Associates, P.C.

Divorce and dividing 401(k) funds

One of the most highly disputed issues that divorcing couples in Illinois may address is the division of 401(k) funds. These types of retirement accounts, like other forms of pensions, have their own set of rules that should be followed in order to avoid consequences such as high tax bills, large penalties and unintended distribution.

Individuals who are entitled to a portion of a workplace retirement plan established by an ex-spouse must use a qualified domestic relation order to obtain their share of the plan. This legal document is necessary whether the retirement plan is classified as a traditional pension or a 401(k).

During the process, the administrator of the plan should be contacted to make sure that the necessary protocols are being followed. The document should be carefully evaluated by a family law attorney to verify that the provisions of the divorce decree are reflected in the legal order. A separate QDRO is required for each retirement account that has to be divided.

The qualified domestic relation order has to specify if the 401(k) funds are to be transferred into a rollover IRA. As a trustee-to-trustee transfer, this transaction is not taxable for the recipient or the holder of the 401(k) account. If an ex-spouse opts to receive a distribution of the funds directly in lieu of a transfer into a rollover IRA, this also has to be specified in the legal order.

A family law attorney may work to protect the interests and rights of a client going through a divorce. If necessary, legal counsel could help ensure that the right procedure is followed when addressing the transfer of retirement funds.

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Zuba & Associates, P.C

Firm Location:

6067 Strathmoor Drive
Rockford, IL 61107

Phone: 815-397-7000
Fax: 815-397-1834
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