How Are Retirement Accounts Divided During a Divorce?

 Posted on July 27, 2026 in Family Law

According to the Pew Research Center, the divorce rate among adults ages 50 and older has roughly doubled since 1990, rising from five to ten divorces for every 1,000 married people. This means more couples are now splitting a 401(k), pension, or IRA after spending decades building those retirement accounts together, and dividing them is often one of the most confusing parts of the divorce process.

If you are heading into a divorce in 2026, a Naperville, IL retirement asset division lawyer can help you understand how Illinois law divides these accounts before you negotiate a settlement.

What Types of Retirement Accounts Can Be Divided in an Illinois Divorce?

Before you can divide a retirement account, it helps to know what kind of account you have. Common types of retirement accounts included in Illinois divorces include:

• 401(k) Plans: A 401(k) is a retirement plan offered through an employer. YTraditional contributions are generally made with pre-tax money, while Roth 401(k) contributions are made with after-tax money.
• Individual Retirement Accounts (IRAs): An IRA is a personal retirement savings account that you open and fund yourself, outside of any employer.
• Pension Plans: Some employers still offer pensions. These pay retirees a set monthly amount once they stop working, based on things like years of service and past salary.

The contributions and benefits earned during the marriage generally count as marital property, no matter which spouse’s name is on the account. Amounts earned before the marriage may remain nonmarital property if they can be properly traced.

How Does Illinois Law Divide Retirement Accounts in a Divorce?

Under the Illinois Marriage and Dissolution of Marriage Act, 750 ILCS 5/503, most property either spouse acquires during the marriage counts as marital property, including money placed into retirement accounts and benefits earned along the way.

To divide that property, Illinois judges use what is called equitable distribution, which does not always mean a fifty-fifty split. Instead, a judge weighs factors like how long the marriage lasted and each spouse's income, needs, and contributions to the family. For retirement accounts, the judge first determines how much of the account is marital property, then divides that portion between the spouses along with the rest of the marital estate.

What Is a QDRO and When Do You Need One?

A Qualified Domestic Relations Order (QDRO) is a court order used todivide many private employer-sponsored retirement plans, such as a 401(k) or private pension covered by federal law. It gives a former spouse, known as the alternate payee, the legal right to receive part of the participant’s benefits. Government, military, and certain other retirement plans may require different orders. For example, many Illinois public pensions are divided through a Qualified Illinois Domestic Relations Order, or QILDRO.

A properly written QDRO can allow a spouse or former spouse to receive funds from a qualified retirement plan without the usual 10 percent early-withdrawal tax. However, the distribution may still be subject to ordinary income tax unless the recipient completes an eligible rollover into another retirement account.

Do You Need a QDRO to Divide an IRA in an Illinois Divorce?

Dividing an IRA works differently than dividing a 401(k) or pension. Since a QDRO only applies to plans covered by federal pension law, it cannot be used to split an IRA. Instead, dividing an IRA calls for a process called transfer incident to divorce.

A transfer incident to divorce lets one spouse move part of an IRA to the other spouse without triggering income tax or an early withdrawal penalty, as long as the move follows the terms of the divorce judgment. The transfer should generally be completed directly between the IRA custodians so that the receiving spouse does not personally withdraw the money. Because mixing up a QDRO and a transfer incident to divorce can slow down your case or cost you money in taxes, it helps to know which process applies to each of your accounts before you sign a settlement.

Should You Take a Lump-Sum Offset or Wait for Future Pension Payments in a Divorce?

When a pension is part of the marital estate, spouses usually choose between two paths. The first is an immediate offset where the spouse without the pension receives other marital property, such as home equity or savings, that equals their share of the pension's current value.

The second path is a deferred distribution. The spouse without the pension waits until the other spouse actually retires and starts collecting payments. At that point, the former spouse receives their share directly from each check, based on the terms in the QDRO. Couples often choose this path when they do not have enough other property to make an immediate offset work, or when the pension has not yet vested.

Each option has trade-offs. An immediate offset settles things now, but it depends on an accurate value for a pension that has not paid out yet. A deferred distribution may delay payments for years, depending on the participant’s age, the plan’s rules, and the terms of the order.

Do You Still Owe Taxes on Retirement Funds After a QDRO or IRA Transfer?

Avoiding a penalty at the time of transfer does not mean the money stays tax-free forever. Once you actually withdraw funds from a 401(k), a pension, or an IRA, that money is usually taxed as ordinary income, whether you originally owned the account or received your share through a divorce.

This is worth factoring into your settlement. A retirement account and a savings account with the same dollar amount may not have the same after-tax value because retirement funds are often taxed when you withdraw them. An experienced attorney can help you weigh this difference.

Schedule a Free Consultation with a Naperville, IL Retirement Asset Division Lawyer

At Mevorah & Giglio Law Offices, our attorneys bring over 175 years of combined experience. We make it a priority to stay in close, frequent contact with our clients at every step. We can help you determine which portion of your retirement accounts counts as marital property and negotiate a settlement that accounts for future taxes. Call 630-932-9100 or contact our Lombard, IL property division attorneys today for a free consultation.