5 Retirement Mistakes to Avoid During An Illinois Divorce

 Posted on June 11, 2025 in Divorce

Divorce is a major turning point that can reshape various aspects of your future, including how you will live during retirement. Amid the stress of dividing homes, debts, and parenting time, retirement accounts can quietly become one of the most overlooked and misunderstood assets. Your decisions about these funds can determine whether you retire comfortably or face years of financial strain.

Unlike checking accounts or household items, retirement assets come with layers of rules, tax consequences, and long-term implications. Failing to properly address them during your divorce can result in missed opportunities and lasting financial damage.

A knowledgeable St. Charles divorce attorney can help you identify, value, and divide retirement assets according to Illinois law so that you can build a secure future post-divorce.

Are You Forgetting to Value and Divide Retirement Accounts?

One of the most damaging mistakes during divorce is failing to recognize the true value of retirement accounts or forgetting to include them in settlement negotiations. Many people will primarily focus on more visible assets, such as the family home or bank accounts, while underestimating the importance of retirement savings. However, these accounts can represent one of the most significant components of marital wealth.

In Illinois, retirement assets such as 401(k) plans, pensions, and IRAs are subject to equitable division if they were earned during the marriage. Even if the account is in one spouse’s name, the portion accrued during the marriage is considered marital property. It is essential to distinguish between the pre-marital and marital portions of each account and to use proper valuation methods. Some retirement plans, like pensions, may require actuarial analysis to determine their present value.

Do You Know When You Need a QDRO?

Many employer-sponsored retirement plans cannot be divided without a Qualified Domestic Relations Order (QDRO). A QDRO is a court order that instructs the plan administrator to distribute retirement funds to a former spouse as part of a divorce settlement. Without a QDRO, attempting to transfer funds may result in taxes, penalties, or even denied access to the funds.

An Illinois QDRO must comply with both federal and state laws. It must specify how the benefits will be divided, whether by percentage or fixed amount, and outline the timing and method of distribution. 

It is important to note that different types of plans may have specific QDRO requirements. Using vague or incorrect language can cause delays or result in rejection by the plan administrator.

On the other hand, not all retirement accounts require a QDRO. For example, dividing an IRA typically does not require a QDRO, but the transfer must still be carefully handled to avoid taxes or early withdrawal penalties.

Are You Considering the Tax Implications?

The tax consequences of dividing retirement accounts are often overlooked during divorce. Not all retirement savings are created equal—some are pre-tax accounts, while others are post-tax. If these differences are ignored, one spouse could end up with a disproportionately lower share of the marital estate.

For instance, a $100,000 traditional 401(k) account may seem equal in value to a $100,000 Roth IRA. However, the traditional 401(k) will be taxed upon withdrawal, whereas the Roth IRA will not, assuming all conditions are met. Similarly, a pension that will pay out monthly income in the future may have a different present value than an IRA that can be immediately accessed. These tax consequences affect not only the account's value, but also how and when the funds can be used.

Another common mistake is accessing retirement funds too early without understanding the tax penalties. Unless you meet specific exceptions, early withdrawals made before age 59 and a half may be subject to income taxes and a 10 percent penalty. These costs can quickly reduce your available assets and derail your retirement planning.

To avoid these incidents, it is wise to work with both a family law attorney and a financial advisor. The advisor can analyze the tax implications of dividing retirement accounts and help structure a settlement that minimizes future liabilities.

Have You Factored in the Impact on Your Retirement Timeline?

Dividing retirement savings during a divorce can significantly impact your retirement timeline and long-term financial planning. Retirement planning post-divorce involves reevaluating your goals, adjusting your projected retirement age, and developing new savings strategies. 

If you were counting on shared income or spousal retirement benefits, those plans may need to be revised. If you receive a portion of your former spouse’s pension or retirement account, you may still have to wait years before accessing the funds, depending on the plan’s rules.

You should also consider the impact of Social Security benefits. If your marriage lasted at least 10 years, you may be eligible to claim spousal benefits based on your former spouse’s earnings. These benefits do not reduce your former spouse’s Social Security income and may provide a valuable supplement to your retirement income.

Did You Update Your Beneficiary Designations?

Forgetting to update beneficiary designations can have serious consequences, especially after a divorce. You may assume your divorce decree will automatically remove a former spouse as a beneficiary, but in Illinois, that is not always the case for non-probate assets.

Leaving outdated beneficiary designations in place can result in assets passing to an ex-spouse, even if your will or trust says otherwise. This can lead to unintended legal battles among heirs and loved ones. After a divorce, updating these documents should be a priority in your overall estate planning process:

• Retirement accounts such as 401(k)s and IRAs

• Life insurance policies

• Annuities

• Transfer-on-death (TOD) and payable-on-death (POD) accounts

Taking the time to revise your financial documents can help you avoid unnecessary disputes and ensure your assets are distributed according to your wishes.

Contact a Kane County, IL Family Law Attorney to Protect Your Retirement

When dividing retirement assets during divorce, it is important to thoroughly examine each step to avoid potential long-term consequences. Whether it involves valuing accounts, avoiding tax mistakes, or drafting a QDRO, careful planning is essential to protect your future financial stability.

At Goostree Law Group, our attorneys will work with you to ensure that retirement accounts are fairly divided and that your financial future remains protected. Contact a St. Charles, IL divorce attorney at 630-584-4800 to schedule a free consultation and learn how we can help you navigate the legal and financial challenges of divorce.