Pensions are often one of the biggest assets in an Illinois divorce. Unlike cash or property, pensions cannot simply be split at the time of divorce. Instead, Illinois law provides several ways to divide a pension, most commonly through a Qualified Domestic Relations Order (QDRO), but also through present value or reserved jurisdiction approaches. Choosing the right option can significantly affect your financial future.
A pension is “a regular series of payments made to a person (or the person’s representatives or beneficiaries) for past services” Black’s Law Dictionary (11th ed. 2019)
Pensions make sense. While you worked you got a paycheck and lived off that paycheck. After you retire, you get a pension check to maintain yourself. The pension lasts as long as your life, thereby fulfilling your needs without guessing at how much you need to save.
Pensions cannot be cashed out at the moment of a divorce because the future pensioner doesn’t have the right to the pension until the stated retirement date. How is a pension’s future stream of income divided in an Illinois divorce?
Can Pensions Be Divided In An Illinois Divorce?
Pensions can be divided in an Illinois divorce. Pensions are considered marital property if earned during the marriage. Illinois courts typically use a Qualified Domestic Relations Order (QDRO), but other methods such as the present value and reserved jurisdiction approaches may also apply.
If any of the pension is earned during the marriage, the pension will be deemed marital property.
“For purposes of distribution of property pursuant to this Section, all pension benefits (including pension benefits under the Illinois Pension Code, defined benefit plans, defined contribution plans and accounts, individual retirement accounts, and non-qualified plans) acquired by or participated in by either spouse after the marriage and before a judgment of dissolution of marriage or legal separation or declaration of invalidity of the marriage are presumed to be marital property.” 750 ILCS 5/503(b)(2)
“[P]ension benefits, to the extent that they are earned during the marriage, are marital property.” In re Marriage of Smith, 102 Ill. App. 3d 769, 772 (1981)
An Illinois divorce court “shall divide the marital property without regard to marital misconduct in just proportions.” 750 ILCS 5/503(d)
“A spouse may overcome the presumption that these pension benefits are marital property by showing through clear and convincing evidence that the pension benefits were acquired by a method listed in subsection (a) of this Section.” 750 ILCS 5/503(b)(2)
While pensions are marital and, thus, divisible, retirement plans are acknowledged to have a non-marital portion when partly earned before the marriage.
“[P]roperty acquired before the marriage, except as it relates to retirement plans that may have both marital and non-marital characteristics” 750 ILCS 5/503(a)(6)
Dividing A Pension Via QDRO In An Illinois Divorce
Most pensions get divided via a Qualified Domestic Relations Order (QDRO) for the sake of fairness and compliance with Employee Retirement Income Security Act of 1974 (ERISA).
“The right to a division of pension benefits in just proportions under this Section is enforceable under Section 1-119 of the Illinois Pension Code.” 750 ILCS 5/503(b)(2)
“An Illinois court of competent jurisdiction in a proceeding for declaration of invalidity of marriage, legal separation, or dissolution of marriage that provides for support or the distribution of property, or any proceeding to amend or enforce such support or property distribution, may order that all or any part of any (i) member’s retirement benefit…or portion thereof…be instead paid by the retirement system to the alternate payee.” 40 ILCS 5/1-119
This division of a pension via a Qualified Domestic Relations Order (QDRO) effectively creates a new pension for the alternate payee (the former spouse) in proportion to the ordered percentage of the pension that was earned after the marriage and before the divorce.
The actual division of the pension is usually drafted by a QDRO/Erisa specialist. I refer all of this work to the Law Office of Anne Schmidt.
Dividing Pensions Without Using QDROs In An Illinois Divorce
QDROs divide pensions to the penny but the specific rules of the pension remain when the pension is split. Pensions are usually triggered by the employee’s retirement. For example. If a 60 year old married a 50 year old, the 60 year old will have to wait until the 50 year old is 65 to collect on the 50 year olds pension…fifteen years from now.
When faced with facts like that, parties to an Illinois divorce may try to divide a pension in other ways…but this is very difficult.
“Pension plans are often difficult to value because the amount of benefits that will actually be received depends on future contingencies. The length of time the employee-spouse actually works, the salary he earns at the end of his career, and any changes to the terms of the pension plan necessarily impact the amount actually received.” In re Marriage of Ramsey, 339 Ill. App. 3d 752, 758 (2003)
An Illinois divorce litigant is not bound to the standard QDRO division of pensions. A divorce litigant can ask for a division of the pension via the present value approach or reserved-jurisdiction approach
“In the event of a dissolution, courts employ two different methods in distributing pension benefits: (1) the present-value or immediate-offset approach and (2) the reserved-jurisdiction approach.” In re Marriage of Culp, 399 Ill App. 3d 542, 546-47 (2010).
The Present Value Approach To Dividing A Pension In An Illinois Divorce
The present value approach usually requires an actuary to determine what the pension is currently worth today. Then the non-pension holding spouse is awarded other marital property worth the awarded portion of the pension.
“Th[e present value] approach is best used when there is sufficient actuarial evidence to determine the present value of the pension, when the employee spouse is close to retirement age, and when there is sufficient marital property to allow an offset.” Robinson v. Robinson, 497 NE 2d 140 – Ill: Appellate Court, 3rd Dist. 1986
“[T]he present-value method, whereby the court determines the present value of the pension plan, awards the entire pension to the employed party, and awards the other party enough other marital property to offset the pension award.” In re Marriage of Ramsey, 339 Ill. App. 3d 752, 758 (2003)
The present value approach removes any future obligation of one spouse to another (even the future obligation of obtaining a QDRO). This furthers the Illinois Marriage and Dissolution of Marriage Act’s goal that “whenever possible, [courts] seeks to cut off all entanglements between the parties so that they may each go their separate ways in life.” In re Marriage of Simmons, 87 Ill. App. 3d 651, 659 (1980).
The Reserved-Jurisdiction Approach To Dividing A Pension In An Illinois Divorce
In contrast the reserved-jurisdiction approach “alleviates the inequities inherent in being unable to determine the present value of the plan benefits. Under this method, the court orders the employee spouse to pay an allocated portion of the pension fund to the former spouse, as it is disbursed, while retaining jurisdiction to enforce the decree. The payments are made by the employee spouse if, as and when” the benefits become payable. The method is one that “equitably considers the interests of both parties, and assures that neither party will suffer an unfair or unjust result from the division of marital property.” Robinson v. Robinson, 146 Ill. App. 3d 474, 476 (1986)
The reserved-jurisdiction approach is complicated!
“The court determines the marital interest in the pension using a fraction, the numerator of which is the number of years or months that the employee-spouse contributed to the pension plan during the marriage and the denominator of which is the total number of years or months the employee-spouse contributes to the plan. Once the employee-spouse begins to receive pension benefits, the amount actually received is multiplied by this fraction to determine the marital interest in each payment, which is then divided according to the property division determined at the time of the dissolution” In re Marriage of Ramsey, 339 Ill. App. 3d 752, 758 (2003)
The reserved-jurisdiction approach does let the court review the pension…as it is being paid out which will probably allow for a greater “division in…just proportions” which should be the priority of the courts above avoiding future entanglement. In re Marriage of Romano, 2012 IL App (2d) 091339, ¶ 121.
Once a trial court orders a pension divided via QDRO, present value approach or reserved jurisdiction approach, do NOT expect an appeals court to reverse that decision.
“The choice of the method of apportioning the present value of the marital property interest in the retirement benefits to which a spouse is entitled is similarly a matter left to the discretion of the trial court.” In re Marriage of Korper, 131 Ill. App. 3d 753, 757 (1985).
Choosing how to divide a pension requires strategic thinking. Be sure your lawyer knows the costs and benefits of the present value approach and the reserved-jurisdiction approach and does NOT just say “You have to QDRO all pensions.” After all, a young person’s pension is useless to an old person or someone who needs the money now.
To learn more about your options regarding your pension or your spouse’s pension, contact my Chicago, Illinois family law firm to speak with an experienced Illinois divorce attorney.
