QDROs and QILDROs: Dividing Retirement Benefits in an Illinois Divorce

Retirement accounts as marital property

Retirement savings are often one of the largest assets in an Illinois divorce. Section 503(b)(2) of the Illinois Marriage and Dissolution of Marriage Act says pension benefits acquired during the marriage are presumed to be marital property. That includes Illinois Pension Code benefits, defined benefit plans, defined contribution plans, IRAs and non-qualified plans. A spouse can overcome the presumption only with clear and convincing evidence that a benefit fits an exception in section 503(a), such as a gift. Section 503(a)(6) also recognizes that retirement plans can have both marital and non-marital parts when a spouse was in the plan before the marriage.

The court divides the marital share "in just proportions" using the section 503(d) factors. Section 503(b)(2) adds that a public pension is valued using the retirement system's own procedures, and that dividing benefits through a Qualified Illinois Domestic Relations Order is not treated as a diminishment or impairment of those benefits. Our post on dividing assets in an Illinois divorce explains the broader process.

Which order fits which plan

What a QDRO does for 401(k) and private pensions

Dividing a 401(k) in an Illinois divorce usually requires a QDRO. Federal law (ERISA) generally bars assigning retirement benefits to anyone else, and a qualified domestic relations order is the exception. Under 29 U.S.C. 1056(d)(3), a QDRO is a state court order, including one approving a property settlement, that relates to child support, alimony or marital property rights and recognizes an "alternate payee's" right to all or part of a participant's benefit. The alternate payee can be a spouse, former spouse, child or other dependent.

To qualify, the order must clearly state the names and mailing addresses of the participant and each alternate payee, the amount or percentage to be paid (or how to calculate it), the number of payments or period it covers, and each plan it applies to. It cannot require the plan to provide a type or form of benefit the plan does not offer, increased benefits, or benefits already assigned to someone else under an earlier QDRO.

Account plans and monthly pensions

A 401(k) or similar account plan holds a balance, so the order usually assigns a percentage or dollar amount of the account as of a stated date. A traditional pension pays a monthly benefit later, so the order must explain how the marital share of that future benefit is figured. Federal law lets a QDRO provide for payments to the alternate payee once the participant reaches the plan's earliest retirement age, even if the participant is still working. To the extent the QDRO says so, a former spouse can also be treated as the surviving spouse for the plan's survivor annuity, which is why survivor coverage should be decided in the settlement.

The plan administrator, not the divorce court, decides whether an order qualifies. Federal law requires every plan to have written procedures for that review and to notify both parties of its decision. Getting those procedures early helps the order match what the plan requires.

Not every account needs a QDRO. An IRA can be divided by a transfer to a spouse or former spouse under the divorce judgment, and 26 U.S.C. 408(d)(6) says that transfer is not taxable to the account owner. Government plans and certain church plans are outside these ERISA rules, so they follow their own requirements.

QILDROs for Illinois public pensions

Illinois public employee pensions in the systems covered by section 1-119 of the Illinois Pension Code are not divided with a QDRO. They use a Qualified Illinois Domestic Relations Order (QILDRO). Section 1-119 applies to retirement systems created under Articles 2 through 18 of the Code. These include:

• The State Employees' Retirement System, the Teachers' Retirement System, the State Universities Retirement System, and the Judges' and General Assembly retirement systems.
• The Illinois Municipal Retirement Fund and the police and firefighter pension funds of municipalities with 500,000 or fewer people.
• The funds the Code sets up for cities over 500,000 people, which in Illinois means Chicago: the police, fire, municipal employees', laborers', park and public school teachers' funds, including the Chicago Teachers' Pension Fund.
• The Cook County employees' fund, the forest preserve district employees' fund and the Metropolitan Water Reclamation District fund.

Key rules in section 1-119:

• A QILDRO must be in substantially the statutory form in subsection (n) and must list the names, mailing addresses and Social Security numbers of the member and the alternate payee.
• It can divert part of a retirement benefit, a member's refund or a death benefit. It cannot apply to survivor's, disability, life insurance or health insurance benefits.
• If the order uses a percentage, the parties must also enter a QILDRO Calculation Court Order showing the dollar amount. The retirement system does not do the math.
• A certified copy must be filed with the retirement system, and the order does not apply to benefits paid before, or within 30 days after, the system receives it. The statute also sets a processing fee for each order.
• For members of certain systems who began participating on or before the section's effective date (the model form refers to July 1, 1999), the order does not take effect without the member's written, irrevocable consent.
• While a QILDRO is in effect, the member cannot choose a payment form that reduces the alternate payee's share without the alternate payee's notarized written consent.
• Within 45 days after a subpoena in the divorce case, the system must provide a statement of the member's contributions and accrued benefits.

Drafting the order with the settlement

Section 401(b) says the court cannot enter a divorce judgment until it has addressed or reserved the disposition of property, so the marital settlement agreement or judgment should state exactly how each retirement benefit is divided. The separate QDRO or QILDRO then carries out those terms. A clear agreement usually addresses:

• The name of each plan and which spouse is the participant or member.
• A percentage or dollar amount, and the date used to measure it.
• Whether the share includes later gains and losses.
• How loans, survivor benefits and early retirement benefits are handled.
• Who drafts the order, who pays for it and the deadline for entering it.

Many judgments state that the court keeps jurisdiction to enter or amend these orders. The statutory QILDRO form includes such a provision. Our guide to marital settlement agreements in Illinois explains how the agreement and judgment fit together.

Steps in Cook County

1. Gather plan statements and the plan's QDRO procedures, or subpoena the public retirement system for a benefit statement.
2. Agree on the division in the settlement agreement, or present it at trial in the Domestic Relations Division of the Circuit Court of Cook County.
3. Prepare the QDRO or QILDRO, and a QILDRO Calculation Court Order if a percentage is used.
4. Present the order to the judge for entry, often as an agreed order.
5. Send a certified copy to the plan or retirement system and follow up until the plan confirms it qualifies or has been implemented.

Bring recent statements for every retirement account, any plan summary or QDRO procedures, the date of marriage, and the date the divorce case was filed.

Common mistakes and delays

• Waiting years after the judgment to enter the order. If the participant retires, dies or takes a distribution first, the options can narrow.
• Using a QDRO form for an Illinois public pension, or a QILDRO for a private plan.
• Stating a percentage without a valuation date or a gains and losses rule.
• Forgetting the QILDRO Calculation Court Order or the member consent requirement.
• Assuming the QILDRO reaches survivor or disability benefits, which section 1-119 excludes.
• Treating an IRA as if it needs a QDRO.

The other spouse can dispute whether part of a benefit is non-marital, argue for a different percentage under section 503(d), or raise a dissipation claim about withdrawals.

How Chicago Family Attorneys can help

• Identify which retirement benefits are marital and which order each plan requires.
• Request plan statements and procedures, or subpoena public retirement systems.
• Negotiate and draft settlement terms for retirement division.
• Prepare and present QDROs, QILDROs and calculation orders in Cook, DuPage, Will and Lake Counties.
• Offer limited scope help: document drafting from $500 or one hearing appearance from $1,200.

Full representation starts with an initial payment of $1,500 to $2,500, then $500 to $650 per month beginning 30 days after the initial payment while representation remains active. See the property division cost page, our asset division services page, what a spouse is entitled to in an Illinois divorce, and our guide to the Illinois Marriage and Dissolution of Marriage Act.

This article is general information about Illinois law, not legal advice for your situation, and it does not predict the outcome of any case.