Preparing for retirement is a lifelong process that requires careful planning and thoughtful goal setting. Most married couples work on their retirement plan together, with many expecting to rely on savings that both spouses have accumulated throughout their lives and careers. However, when your marriage ends in divorce, those retirement plans can be turned upside down, and you and your spouse will likely need to adapt your retirement goals for your new life circumstances. In some cases, this means delaying your retirement date, but there may be other options as well.
What Happens to Retirement Savings in an Illinois Divorce?
What becomes of your retirement savings depends on whether the funds qualify as marital or non-marital assets. If you have a retirement account that was funded entirely before your marriage, it will be considered non-marital property, and you will likely be able to hold onto the entire amount. If you have contributed to an account both before and during your marriage, the pre-marriage contributions may also qualify as non-marital property, though it is important to maintain detailed records to clarify this non-marital portion.
Any contributions to a retirement account during your marriage will likely qualify as marital property, even if you and your spouse each have accounts in your own name. This applies to a variety of accounts including IRAs, pensions, 401(k)s, and more. These accounts will be considered in the division of marital property in your divorce, and if an account needs to be split, it is important to take action to minimize tax consequences and early withdrawal penalties. For example, you should obtain approval for a transfer incident to divorce in order to divide an IRA, and a Qualified Domestic Relations Order (QDRO) in order to divide employer-sponsored accounts like a 401(k).
Adjusting Retirement Plans After Divorce
Though dividing retirement accounts correctly can help to minimize your losses, you will most likely find that your retirement funds decrease somewhat in your divorce, requiring you to adapt your retirement plans. Some options for doing so include:
- Waiting longer to retire – This may be your best option if you get a divorce later in life, as it can allow you a few more years to build your savings back up. You could also consider new sources of income during this time, like a part-time job.
- Increasing your monthly contributions – If you retire at a younger age, you may be able to make up for your divorce losses by increasing your retirement account contributions over time, allowing you to reach the savings goals you established before your divorce.
- Decreasing your retirement budget – While it can be difficult to sacrifice some of your retirement plans, finding ways to reduce your cost of living in retirement, like downsizing your home or planning fewer trips, can help you remain financially stable.
Contact a DuPage County Divorce Lawyer
At Mevorah & Giglio Law Offices, we can help you make and execute a plan to protect your retirement savings as much as possible during the divorce process so that your goals remain in sight after your marriage has ended. Contact us today at 630-932-9100 for a free consultation with our experienced Lombard, IL property division attorneys.