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Do your personal contributions for a 401K impact asset division?

There are a lot of factors that impact how assets get divided during a divorce. The kind of divorce you're seeking, whether or not there is a prenuptial agreement on record and even custody of your children, can have an impact on who gets what. The courts in Illinois strive to fairly divide all marital property between both spouses during a divorce.

Marital property in Illinois includes any assets earned during the marriage. It matters less who earned the income or obtained the asset and far more when the acquisition took place. Amounts in the account before your marriage will likely get exempted from the asset division process, but any deposits or accrued interest during your marriage is subject to division by the courts.

Retirement accounts are typically marital assets

Unless there is a prenuptial agreement between you and your spouse that handles the division or possession of retirement accounts, chances are you both have an interest in them. Even if you were the only one who contributed to the account, the courts will likely consider it a shared asset.

It isn't uncommon for people to feel confused about retirement accounts. After all, if it was in your name and funded solely by deposits from your paycheck and employer matching funds, why should your non-working spouse receive anything?

Because you were married, your stay-at-home spouse provided you with benefits and services that allowed you to work full time and earn a decent wage. Cleaning, cooking, home management and even child care can cost thousands of dollars each month if outsourced to professionals. The work done in the home allowed you to make a good wage and build your retirement account. As such, your spouse should share in the benefits and assets derived from his or her contributions to the home.

Splitting the account in divorce can eliminate penalties

If the thought of splitting your retirement account has you panicked about potential tax liabilities and penalties, don't worry. When the courts order the division of your retirement account, you can have the accounts split using a special form, commonly called a Qualified Domestic Relations Order (QDRO).

In order to be qualified, the request to divide the account must get approved by the family courts as well as the plan administrator for your 401K, Roth IRA or other retirement account.

Once approved by the courts and the manager of your retirement plan, the requested amount, typically ordered as a percentage, will get deposited into a new account in the name of the spouse who was not the owner of the original retirement account. While this will prevent you from incurring penalties or fees, you will need to consider how to rebuild the balance of your account to retire as you had initially planned.

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