CHICAGO, IL – Dividing tax-deferred retirement accounts in Illinois divorce requires a Qualified Domestic Relations Order to preserve the accounts’ tax-deferred status and avoid early withdrawal penalties. Chicago divorce attorney Russell D. Knight of the Law Office of Russell D. Knight (https://rdklegal.com/what-is-a-qdro-in-an-illinois-divorce) explains the QDRO process and how couples can divide retirement funds without incurring tax consequences.
According to Chicago divorce attorney Russell D. Knight, a Qualified Domestic Relations Order is a court order that allows for the division of a tax-deferred retirement account and the preservation of that account’s tax-deferred status. Under federal law at 26 U.S. Code § 414(p)(1)(a), a QDRO creates or recognizes the existence of an alternate payee’s right to receive all or a portion of the benefits payable with respect to a participant under a plan.
Chicago divorce attorney Russell D. Knight emphasizes that any retirement plan either spouse contributed to during the marriage will be considered marital property proportionate to when contributions were made. Under 750 ILCS 5/503(b)(2), all pension benefits acquired by or participated in by either spouse after the marriage and before a judgment of dissolution are presumed to be marital property. “Pension benefits earned during the marriage are considered marital property and, upon dissolution, are subject to division like any other property,” explains Knight.
Attorney Knight notes that dividing a tax-deferred plan requires that the account stay tax-deferred for both parties to avoid penalties. Without a QDRO, withdrawing money from a tax-deferred plan before age 59½ triggers both income tax at the current tax rate plus an additional 10% penalty. “Making sure these withdrawal penalties don’t kick in when dividing and distributing tax-deferred accounts is the duty of any Illinois divorce lawyer,” he observes.
The firm guides clients through the QDRO process for all types of retirement plans, including 401(k), 457(b), IRA, and pension accounts. Federal law requires QDROs to include specific information: the name and mailing address of the participant and each alternate payee, the amount or percentage of benefits to be paid, the number of payments or period to which the order applies, and each plan to which the order applies.
Knight advises that most tax-deferred plans have a model QDRO for divorce lawyers to use, as federal law requires each plan to establish reasonable procedures to determine the qualified status of domestic relations orders. “A friendly call to any customer service number on your 401(k) or pension statement will direct you to a sample QDRO,” he points out.
If a tax-deferred account was started before the marriage, the contributions made before marriage are non-marital and not divisible in divorce. The plan administrator calculates and divides only the marital portion using the marriage date and divorce date provided in the QDRO. “The company will calculate the marital portion correctly using those dates,” Knight adds. “You can hire your own actuary if you’d like, but no one really does that.”
About Law Office of Russell D. Knight:
The Law Office of Russell D. Knight is a Chicago-based family law firm focused on divorce, retirement asset division, and financial disputes. Led by attorney Russell D. Knight, who has completed extensive trial training, including NITA programs and the National Family Law Trial Institute’s Kolodny Trial Skills Course, the firm provides clear communication and structured approaches to complex matters. For consultations, contact the Law Office of Russell D. Knight.
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Phone: (773) 334-6311
Address:1165 N Clark St #700
City: Chicago
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Website: https://rdklegal.com/