Will Divorce Impact My Retirement Income in Illinois?

 Posted on November 15,2024 in Over 50

Divorce is never simple, but for people aged 50 or older who are ending a marriage, the challenges can be incredibly complex. Also known as "gray divorce", one of the most pressing concerns in these later-in-life divorces is the impact on retirement income. Decades of shared finances, long-term investments, and retirement planning now need to be carefully untangled. The stakes are high for those nearing or already in retirement, as a reduced retirement income can affect quality of life, healthcare options, and even the ability to maintain independence. An experienced Illinois divorce attorney can help ensure that your retirement income is accurately assessed and divided to create a stable post-divorce future. 

How Are Pensions Divided in a Gray Divorce?

In Illinois, pensions earned during a marriage are considered marital property and are subject to division in divorce. State laws follow an equitable distribution approach, meaning that retirement assets are divided fairly, but not necessarily equally. Factors like the length of the marriage, each spouse’s financial needs, and future earning ability are all considered.

In some cases, couples can arrange for a Qualified Domestic Relations Order (QDRO), a legal order that allows a spouse to receive a portion of the other’s pension plan without early withdrawal penalties or taxes. A properly implemented QDRO can help protect retirement income after divorce.

Can I Still Receive My Ex-Spouse’s Social Security Benefits?

If a couple has been married for at least 10 years, a divorced spouse may be eligible to claim Social Security benefits based on their ex-spouse’s earning record. Key points to consider are:

• The divorced spouse claiming benefits must be at least 62 years old.

• They must not be remarried.

• The benefits claimed do not reduce the ex-spouse’s benefit amount.

If both spouses have worked and earned Social Security benefits, each spouse should consider whether their own benefits or the benefits of their former spouse would maximize their retirement income.

What Happens to IRAs and Other Retirement Accounts?

Individual Retirement Accounts (IRAs), including traditional and Roth IRAs, are also subject to division in an Illinois gray divorce. Unlike employer-sponsored plans, IRAs do not require a QDRO for division. However, transfers must be handled carefully to avoid penalties and taxes. 

Some options when dividing an IRA include:

• Rollover: This method allows for tax-free rollovers from one spouse's IRA to another spouse’s.

• Direct Transfer: This approach ensures funds are moved directly to prevent taxable events.

How Will Gray Divorce Affect My Overall Retirement Planning?

Gray divorce requires people to adjust their retirement planning strategies, as it can significantly reduce the assets available for each person. Instead of relying on a combined retirement fund, each spouse may need to rethink their retirement goals for factors such as:

• Living Expenses: Each person will likely have separate households, meaning increased expenses and a potential need to work longer than initially planned.

• Healthcare Costs: Older adults often face higher medical expenses, so it is important to evaluate health insurance and long-term care options.

• Future Income Sources: In addition to Social Security, pensions, and IRAs, it may be necessary to explore other income sources, such as part-time work or rental income, to supplement retirement funds.

Contact a Kane County, IL Divorce Lawyer for Guidance

If you are facing a gray divorce and have questions about how it may affect your retirement planning, a St. Charles, IL divorce lawyer can provide guidance. Contact Goostree Law Group at 630-584-4800 to learn more about how we can help you navigate your divorce and secure your retirement income.