ARTICLES

401(k)s and Retirement Investments

401(k)s, and IRAs: The money a spouse invests in retirement and long-term savings and investments accounts is, if acquired during the marriage, marital property.

Pension Benefits: Pension benefits earned, or contributions made, during the marriage are generally considered to be marital property (even for policemen¹ and firemen²) and are susceptible of division upon divorce. The value of the marital portion of pension benefits can be divided between spouses in one of two, basic, ways. One way is "the offset method," where the non-pension-holding spouse receives a sum equal to his or her percentage share of the present value of the marital portion of the asset – make sense? Another way to divide the marital portion of a pension is using a Qualified Domestic Relations Order (QDRO – pronounced by judges and lawyers as "QUAD-row"). Under a QDRO, the financial institution that manages the pension is given a set of instructions approved by the divorce judge. The instructions specify how much of the pension each party will receive upon retirement. Essentially, the financial managers setup a separate account for each spouse.

The first step, however, is to value the marital portion of the pension. Since this will determine how much money ultimately will be paid out to each spouse, it is the most important part of pension divisions. There are three ways to value pensions: the segregation method,³ the coverture method, and the subtraction method.⁴ Each method uses different information to value the pension shares and, therefore, arrives at different values. Be sure to work with an attorney who can help you find the highest value for your share of any pensions at issue. While the segregation method is the most accurate, you may not have all the information needed.⁵

You should hire an attorney to handle any retirement assets – federal law and state law often overlap and sorting out the rules can be tricky.⁶ In some cases, the federal Employee Retirement Income Security Act of 1974 (ERISA) supersedes state law in some cases, but not in others – and it looks to the law of each state for definitions.

The pensions of some government employees cannot be touched by QDROs – but can be addressed by QILDROs (Qualified Illinois Domestic Relations Orders). Where the employee-spouse started participating in the pension fund prior to the effective date of the QILDRO statute, however, no court order can touch those pension funds.⁷

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