In regard to marriage and marital assets, there are two types of property jurisdictions in the United States: community property jurisdictions and equitable distribution jurisdictions, otherwise known as common law jurisdictions. Illinois is an equitable distribution jurisdiction, meaning that courts in Illinois divide marital property upon dissolution based on what is just and fair. In Illinois, retirement benefits acquired during the course of marriage are considered marital assets belonging to both spouses equally.
Employee Retirement Income Security Act of 1974 (ERISA)
Typically, pensions and other retirement benefits are divided during dissolution, pursuant to a Qualified Domestic Relations Order (QDRO). These court orders direct an administrator of a retirement fund to divide the benefits according to the terms of a divorce decree. The Employee Retirement Income Security Act (ERISA) requires that a QDRO be in compliance with the Act's provisions. In most cases, a nonparticipant spouse is entitled to the same rights as the participant spouse.
Qualified Illinois Domestic Relations Order (QILDRO)
Pursuant to the Illinois Compiled Statutes, courts may issue a Qualified Illinois Domestic Relations Order (QILDRO) during a divorce proceeding. A QILDRO is a court decree recognizing a nonparticipating spouse as an "alternate payee." As an alternate payee, the spouse whose name is not on a retirement plan becomes a beneficiary. Depending on the circumstances, an Illinois court may award all or part of retirement benefits to the alternate payee spouse.
Lump Sum Methods of Distribution
Regarding retirement benefits, the two methods of distribution are direct transfer and renaming. Under the direct transfer method, the owner-spouse of an Individual Retirement Account (IRA) may direct an administrator/trustee to transfer funds to a new IRA set up specifically for the nonowner spouse. The amount of funds transferred depends on what the court deemed fair and just. Under the renaming method, the nonowner spouse places the existing IRA into her name. This method typically occurs if a court awarded the nonowner spouse all the funds in the IRA.
Distribution Upon Retirement
If a divorce settlement does not involve a lump sum payment, pension funds are distributed at the time of the owner-spouse's retirement. Typically, an ex-spouse's share of pension funds is based on earnings amassed at the time of the divorce decree. In other words, once a couple divorces, any retirement funds accrued after the divorce belong solely to the owner-spouse. Once the owner-spouse retires, the retirement system initiates payments to the nonowner spouse/alternate payee. The retirement system is not required to search for the alternate payee; it is only required to attempt contact using the alternate payee's last known address. If an alternate payee cannot be located within 180 days of the date upon which the benefits became payable, all funds revert to the original payee.