Divorce & Retirement Benefits

Many divorcing couples are surprised to find that their collective retirement benefits are worth more than their home and other assets.  As a result, if you’re going through a divorce, you need an attorney who understands the complexities of determining the value of retirement benefits, and who will fight to ensure that you receive the full value to which you are entitled.

Types of Retirement Benefits – Defined Contribution and Defined Benefit Plans

In Illinois, retirement benefits earned during the marriage are generally considered marital property. Retirement benefit plans generally fall into one of two categories: defined contribution plans (such as 401k plans) and defined benefit plans (such as pension plans).

A defined contribution plan consists of a plan where both the employee and employer may make contributions into the plan, and these contributions are then invested into assets (usually stocks and mutual funds).  At retirement, the employee is entitled to begin withdrawing funds from this plan (which usually happens as stocks, mutual funds, or other equities are sold).  Ultimately, the value of the plan will be dependent upon how much is invested into the plan and how well the plan investments have performed.

A defined contribution plan, on the other hand, specifies a formula for determining payouts to be made to an employee at retirement.  The value of this plan is not tied to the value of the performance of any assets (such as stock), but rather is “defined” by the formula in the plan (which is usually tied to the number of years that an employee has worked for a company, the employee’s age at retirement, and the employee’s earnings with the company).

Valuing Defined Contribution and Defined Benefit Plans

Of the two main types of retirement plans, defined contribution plans (like 401k Plans) are the easiest to value, as participants are generally provided with quarterly statements that reflect the exact value of a participant’s plan assets at a specific time (although there are vesting issues which may need to be considered).

Defined benefit plans (such as pension plans) are more complicated to value as payout terms and conditions vary.   Typically, the value of a pension plan will increase (often significantly) the more years that an employee works for a company, and the higher the salary that is paid to the employee.

We can help with actuarial and financial components of plan valuation.  With pension plans, valuation can be somewhat complex, as many assumptions must be made about duration of employment and salary.

Allocating Retirement Benefits – How We Help

The difficult aspect of dividing retirement benefits is that while a value can be determined for the retirement benefits, the fact is that neither spouse is usually entitled to receive any retirement payments until a future date.  Thus, if the retirement benefits are currently worth $50,000, it is not the case that each party simply receives a check for $25,000.

We can help you come up with a settlement or litigation strategy which equitably considers and divides up the marital portion of any retirement benefits you are entitled to. There are a couple of different strategies which are often employed. If the couple has other assets comparable to the value of the retirement benefits at issue, an “offsetting award” approach can be employed. For instance, if the equity in couple’s home and furniture is of approximately the same value as the marital portion of the pension one spouse could be awarded the home and furnishings and the other spouse awarded the full value of the pension.


Unfortunately, this “offsetting award” approach often does not work because there are insufficient other assets comprising the marital estate, or because the marital portion of one spouse’s retirement benefits is disproportionately large. In such cases, the Court can order the benefits of one of the spouse’s pension plans to be divided and paid to each spouse through what is referred to as Qualified Domestic Relations Orders (“QDROs”), or Qualified Illinois Domestic Relations Orders (“QILDROs”), as applicable. Under these orders, each spouse becomes entitled to a specified amount or percentage of the retirement benefits at some later date (typically upon retirement of the spouse named in the retirement plan).

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