## Dividing retirement accounts (QDROs) in Illinois When a Illinois divorce divides retirement assets — 401(k)s, pensions, 403(b)s, etc. — a divorce decree alone is NOT enough. You need a **Qualified Domestic Relations Order (QDRO)** that the plan administrator accepts. ## What a QDRO does **A QDRO is a court order that:** - Recognizes alternate payee's (ex-spouse's) right to share - Directs plan administrator to make payments - Specifies amount / percentage / formula - Sets timing of distributions - Survives separately from divorce decree **Without QDRO:** - Cannot access ex-spouse's retirement - Plan administrator won't honor divorce decree alone - Tax issues if participant withdraws + transfers - 10% early-withdrawal penalty applies ## Plans that need QDROs (ERISA) **Subject to ERISA + need QDRO:** - Private 401(k) - 403(b) - Defined-benefit pension - Profit-sharing - ESOP (Employee Stock Ownership Plan) - Thrift plans - Money-purchase plans **Plans NOT needing QDRO** (different procedures): - IRAs (use "transfer incident to divorce") - Government plans (federal — separate orders) - Military retirement (separate process) - State / municipal plans (state-specific) - 457 plans (sometimes) ## Two main retirement-account types **1. Defined-contribution plans (401k / 403b / etc.):** - Account balance you can see - Easier to value - Easier to divide (specific dollar / percentage) - Immediate (or near-immediate) transfer - Recipient can roll to own IRA **2. Defined-benefit plans (pensions):** - Future stream of payments - Harder to value (actuarial calculation) - Two division methods: **Pension division methods:** **A. Separate-interest method:** - Alternate payee receives independent right - Payments based on alternate payee's life - Continues even if participant dies - Survivor benefits issues **B. Shared-interest method:** - Alternate payee receives portion of participant's payment - Stops when participant dies - Survivor benefits often required - Less independence ## Calculating the marital portion **Common formulas:** **Coverture fraction (pensions):** - Numerator: years married + working - Denominator: total years working - Result × benefit = marital portion - Then divide marital portion (often 50/50) **Subtraction method (401k):** - Premarital balance + appreciation - Subtracted from current balance - Difference is marital - Plus contributions during marriage **Tracing method:** - Trace specific contributions - Identify marital vs separate - More complex but accurate ## Process **1. Settlement / decree:** - Divorce decree includes division terms - Sometimes specific dollar amount / percentage - Sometimes just "split equally" - More specific = better **2. Draft QDRO:** - Specialized practice area - Plan-specific requirements - Specialist QDRO attorney typical - Pre-approval review - Cost: $500-$2,500 typical per order **3. Plan pre-approval:** - Submit draft to plan administrator - Plan reviews + approves form - Modifications often required - Pre-approval saves rejection **4. Court entry:** - Submit to court for signature - Court enters as official order - Certified copies obtained **5. Submit to plan:** - Send certified copy to plan administrator - Plan reviews for compliance - Approves or rejects - Implements when approved **6. Plan distribution:** - Defined contribution: roll to alternate payee's IRA (typically) - Defined benefit: payments per plan terms - Tax treatment: alternate payee taxed as recipient ## Common QDRO mistakes **Drafting errors:** - Vague language - Missing required provisions - Incorrect plan name / address - Wrong account type - Wrong calculation method - Missing alternate payee info - Conflicting terms with decree **Strategic errors:** - Specifying too narrowly - Missing earnings / loss provisions - Not addressing survivor benefits - Not addressing future loans - Forgetting cost-of-living adjustments - Forgetting market gains/losses pending **Timing errors:** - Drafting too late (account changes) - Failing to enter promptly - Participant takes distribution first - Plan terminates / merges **Administrative errors:** - Wrong participant SSN - Wrong dates - Missing signatures - Not certified copies ## Tax issues **Distribution to alternate payee:** - NOT taxable to participant - Taxable to alternate payee when distributed - 10% early-withdrawal penalty WAIVED for QDRO distributions - Roll to IRA: no tax until withdrawal - Cash distribution: taxable + may be early **Strategic options:** - Alternate payee under 59½: take cash WITHOUT 10% penalty (QDRO exception) - Alternate payee can roll to own IRA - Mix of strategies often optimal - Plan with tax advisor ## Survivor benefits **Pre-Retirement Survivor Annuity (PRSA):** - If participant dies before retirement - Spouse normally entitled to 50% of benefit - QDRO can preserve / divide - Critical issue for ex-spouses **Joint and Survivor Annuity:** - After participant retires - Continues to spouse after participant's death - ERISA presumption is 50% J&S - Election + waiver requirements - QDRO can preserve / modify ## Loans against retirement **If participant has 401(k) loan:** - Must address in QDRO - Otherwise reduces alternate payee's share - Specific allocation required - Repayment provisions if applicable ## Government / military / specialty plans **Federal employees (CSRS / FERS):** - Use "Court Order Acceptable for Processing" (COAP) - OPM has specific requirements - Different from private QDRO **Military retirement:** - USFSPA (Uniformed Services Former Spouses' Protection Act) - 10/10 rule for direct payment (10 years marriage during service) - DFAS handles distributions - Can divide regardless of 10/10 rule (just can't get direct DFAS payment) **State retirement systems:** - Each state has specific rules - ${s.name} state employees have specific procedures - Often called Domestic Relations Orders (DROs) not QDROs - Different forms / requirements **457 plans (governmental):** - Sometimes need DRO - Sometimes just standard division **Railroad Retirement:** - Tier I treated like Social Security - Tier II divisible via specific procedures ## Multiple plans = multiple QDROs **Each plan needs separate QDRO:** - Different employers - Different plan types - Each has own requirements - Costs add up ## Cost considerations **QDRO drafting:** - Specialist attorney: $500-$2,500/order - General divorce attorney: sometimes more (less efficient) - Plan-administrator-prepared: sometimes free - DIY: risky **Plan-administrator review fees:** - Some charge for QDRO review - Often deducted from account - Sometimes ($300-$1,000) - Negotiable in settlement ## When to address QDROs **During divorce process:** - Pre-divorce planning - Specific decree terms - Identify all retirement accounts - Get current account balances - Get plan summary descriptions **At settlement / decree:** - Decree should specifically address - Specify division method - Designate who drafts QDRO - Set deadline for QDRO - Allocate cost **Post-decree:** - Don't delay - Account values change - Participant may take distributions - Plan may merge / terminate ## Common scenarios **Long marriage / one career:** - 50/50 split of marital portion - Long time horizon for division - Significant value **Two-career couple:** - Each retains own + offsets - Or QDROs both ways - Net result similar **Short marriage / pre-marital wealth:** - Limited division - Tracing premarital portion - Often less significant **Stay-at-home spouse:** - Significant share of working spouse's accounts - Often supplements alimony - Critical financial security **Pension already in pay status:** - Different procedure - Plan administrator review - Sometimes cannot easily divide ## What you should do If you're divorcing in Illinois and dividing retirement: hire a QDRO specialist (or have your divorce attorney coordinate with one). Don't accept generic QDRO language. Plan-administrator pre-approval before court entry saves headaches. Get all this addressed before final decree if possible. Illinois divorce attorneys typically know QDRO specialists or handle drafting themselves. --- *This guide is general information about federal + Illinois law as of mid-2026 and is not legal advice. QDROs are technical + plan-specific. Talk to a licensed Illinois family-law attorney + QDRO specialist about your specific situation.*