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What is a QILDRO in an Illinois Divorce?
There are so many acronyms in Illinois family law: HFS, MSA, OC, QDRO, QILDRO. It’s hard to keep track of terms that are only relevant in an Illinois divorce…while you’re in the middle of an Illinois divorce.
What is a QILDRO?
“”Qualified Illinois Domestic Relations Order” or “QILDRO” means an Illinois court order that creates or recognizes the existence of an alternate payee’s right to receive all or a portion of a member’s accrued benefits in a retirement system, is issued pursuant…the Illinois Marriage and Dissolution of Marriage Act…; a QILDRO is intended to be a domestic relations order within the meaning of paragraph (11) of [26 U.S. Code Sec. 414(p)].” 40 ILCS 5/1-119(a)(6)
Paragraph 11 of 26 U.S. Code Sec. 414(p) reads: “For purposes of this title, a distribution or payment from a governmental plan (as defined in subsection…shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domestic relations order which meets the requirement of clause (i) of paragraph (1)(A) [of 26 U.S. Code Sec 414(p)]”
“The term “qualified domestic relations order” means a domestic relations order…which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan” 26 U.S. Code Sec. 414(p)(1)(A)
How Do You Divide A QILDRO in an Illinois divorce?
Retirement benefits earned from the state of Illinois while either party is married are marital property.
“‘[M]arital property’ means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 5/503(a)
“For purposes of distribution of property, all property acquired by either spouse after the marriage and before a judgment of dissolution of marriage or declaration of invalidity of marriage is presumed marital property.” 750 ILCS 5/503(b)
“It is well settled that pension benefits earned during the marriage are considered marital property and, upon dissolution, are subject to division like any other property.” In re Marriage of Menken, 778 NE 2d 281 – Ill: Appellate Court, 2nd Dist. 2002
An Illinois divorce court can divide a government retirement benefit between an Illinois state employee and their divorcing spouse.
“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, (ii) member’s refund payable to or on behalf of the member, or (iii) death benefit, or portion thereof, that would otherwise be payable to the member’s death benefit beneficiaries or estate be instead paid by the retirement system to the alternate payee.” 40 ILCS 5/1-119(a)(6)
Wait isn’t this just a Qualified Domestic Relations Order like any other court order that divides a 401k or pension? No.
Benefits provided by the State Employees’ Retirement System of Illinois (“SERS”) are not subject to Qualified Domestic Relations Orders (“QDROs”).
Specifically, government employees get benefits in addition to their retirement which are non-divisible in a divorce.
“A QILDRO shall not apply to or affect the payment of any survivor’s benefit, disability benefit, life insurance benefit, or health insurance benefit.” 40 ILCS 5/1-119(b)(4)
Additionally, QDROs have a “set it and forget it” quality where a retirement fund is divided up by the plan administrator and delivered, personally, to the divorcing spouse immediately after the divorce. QILDROs are divided up by the participants (with no help) and don’t get paid out for years. So, QILDROs have to be carefully prepared and monitored over years both before and after retirement.
At least all QILDROs are all alike because every retirement benefit for State of Illinois employees passes through the State Employee’s Retirement System of Illinois (“SERS”)
Example of a QILDRO
The State Employee’s Retirement System of Illinois provides an example of a QILDRO order that can be entered by an Illinois divorce court and accepted by the State Employee’s Retirement System.
As we all know, Illinois’ State Employee’s Retirement Benefits are not based on money that has been carefully accumulated over the years and then finally distributed to the employee upon retirement. Instead, most Illinois State Employees receive a pension that is paid by current taxes or State borrowing.
A pension is a defined benefit plan. “Under a defined-benefit plan, the value of the pension’s benefit is determined at retirement based on years of service and final salary Because of this, the amount of pension assigned to the divorced spouse is not determined to the penny by a pension fund’s actuaries. Instead the sample QILDRO order leaves the math up to the parties. Each year of service is valued cumulatively: the longer SERS members work, the higher the percentage of their final salary they will collect as their pension. Because each year of service contributes to the overall value of the pension, the marital portion of the pension increases in value the longer the pension holder works. Thus, its total value is unascertainable until the time of retirement, which is often years after the dissolution of marriage.” In re Marriage of Culp, 936 NE 2d 1040 – Ill: Appellate Court, 4th Dist. 2010
This makes determining the accurate marital portion of an Illinois State employee’s pension impossible until the employee actually retires!
“[B]y postponing the division of the pension until it is received, both parties shared the risk [the state employee] would change jobs or die before retiring, which would reduce the pension substantially or forfeit its benefits completely.” In re Marriage of Culp, 936 NE 2d 1040 – Ill: Appellate Court, 4th Dist. 2010
Because of this risk, most Illinois state employees will hire an actuary to estimate the marital portion’s value or just settle on a percentage based on the length of the marriage.
Once these estimates are made and agreed upon, they must be included in the QILDRO order.
“The Retirement System shall pay the alternate payee pursuant to one of the following methods (complete the ONE option that applies):
(1) $___________ per month (enter amount); or
(2) ____________% (enter percentage) per month of the marital portion of said benefit with the marital portion defined using the formula in Section IX; or
(3) ____________% (enter percentage) per month of the gross amount of said benefit calculated as of the date the (check one) member’s alternate payee’s benefit commences (check alternate payee only if the alternate payee will commence benefits after the member commences benefits, e.g. if the member is receiving retirement benefits at the time this Order is entered).”
The first option is just an agreement on a set amount of money per month.
The third option is just a raw agreed percentage of the total benefit the former Illinois State Employee receives.
The second option takes a lot of math to determine exactly what the marital portion of the pension is and how that marital portion will be allotted to the other party to the divorce.
“(1) The amount of the alternate payee’s benefit shall be the result of (A/B) x C x D where:
“A” equals the number of months of (check only one) regular regular plus permissive other service that the member accumulated in the Retirement System from the date of marriage (enter date MM/DD/YYYY) to the date of divorce (enter date MM/DD/YYYY). This number of months of service shall be calculated as whole months after receipt of information required from the Retirement System pursuant to Section 1-119 of the Illinois Pension Code (40 ILCS 5/1-119).
“B” equals the number of months of (check only one) regular regular plus permissive other service that the member accumulated in the Retirement System from the time of initial member – ship in the Retirement System through the member’s effective date of retirement. The number of months of service shall be calculated as whole months after receipt of information required from the Retirement System pursuant to Section1-119 of the Illinois Pension Code ( 40 ILCS 5/1-119 ).
“C” equals the gross amount of: (i) the member’s monthly retirement benefit (Section III(A)) calculated as of the member’s effective date of retirement (check only one) including not including other permissive service, upgrades purchased, and other benefit formula enhancements; (ii) the member’s refund payable upon termination or lump sum retirement benefit that becomes payable, including any payable interest (Section V(A)) calculated as of the time said refund becomes payable to the member; (iii) the member’s partial refund, including any payable interest (Section VI (A)) calculated as of the time said partial refund becomes payable to the member; or (iv) the death benefit payable to the member’s death benefit beneficiaries or estate, including any payable interest (Section VII (A)) calculated as of the time said benefit becomes payable to the member’s beneficiary; whichever are applicable pursuant to Section III, V, VI, or VII of this Order. These gross amounts shall be provided by the Retirement System pursuant to Section 1-119 of the Illinois Pension Code ( 40 ILCS 5/1-119 ).
Sample “D” equals the percentage noted [in the section option]”
Please note that you must do this correctly. The State of Illinois will not double check your numbers for accuracy.
“The retirement system shall have no obligation to make any determination as to whether the calculations in the QILDRO Calculation Court Order are accurate or whether the calculations are in accordance with the parties’ QILDRO, agreement, or judgment. The retirement system shall not reject a QILDRO Calculation Court Order because the calculations are not accurate or not in accordance with the parties’ QILDRO, agreement, or judgment. The retirement system shall have no responsibility for the consequences of its implementation of a QILDRO Calculation Court Order that is inaccurate or not in accordance with the parties’ QILDRO, agreement, or judgment.” 40 ILCS 5/1-119(b)(6)
Upon entry of the QILDRO in an Illinois divorce court, the signed QILDRO shall be forwarded to SERS for entry.
“Within 45 days after the receipt of a QILDRO Calculation Court Order, the retirement system shall notify the member and the alternate payee (or one designated representative of each) of the receipt of the Order.” 40 ILCS 5/1-119(b)(6)
The Illinois state employee’s spouse will begin receiving their allotted share from SERS concurrently with the Illinois state employee’s, now reduced, share of their pension.
The spouse receiving the benefit through the Illinois State Employee MUST wait for the employee to receive their benefit to get their share. This is great if you marry a much older person (who will reduce your marital share for the years you weren’t married to them) but is quite vexing if you married someone much younger.
Furthermore, it is the recipient’s responsibility to let the Illinois State Employee’s Retirement System know where to send their money.
“Each alternate payee is responsible for maintaining a current mailing address on file with the retirement system. The retirement system shall have no duty to attempt to locate any alternate payee by any means other than sending written notice to the last known address of the alternate payee on file with the system.” 40 ILCS 5/1-119(e)(1)
Alternatives To QILDROs In An Illinois Divorce
Because of the above complexities and uncertainties with Illinois State pensions, many Illinois State Employees and their ex-spouses simply don’t want to further entwine themselves with a QILDRO that will need to be enforced throughout their golden years.
One reason to avoid a QILDRO is that the pension is tied to the life of the public employee NOT your life. If your ex-spouse dies, you get no survivor’s benefit after a divorce.
The Pension Code provides for payment of a pension to survivors in the event of a firefighter’s death, including payments to “the surviving spouse” and “if there is a surviving spouse, to the guardian of any minor child or children.” 40 ILCS 5/4-114(a)(1)
If there has been a divorce, it’s another story. For example, for a firefighter, there are no benefits to the divorced widow(er), unless you judicially set aside the divorce within two years of the divorce. “If a judgment of dissolution of marriage between a firefighter and spouse is judicially set aside subsequent to the firefighter’s death, the surviving spouse is eligible for the pension provided in paragraph (a) only if the judicial proceedings are filed within 2 years after the date of the dissolution of marriage and within one year after the firefighter’s death and the board is made a party to the proceedings.” 40 ILCS 5/4-114(g)
In lieu of a QILDRO, the parties simply divide assets in whole parts. For example, the Illinois State employee will keep their pension and waive any interest in the marital home, the other spouse’s 401k or some other kind of marital asset.
If you’re an Illinois State employee or you are married to an Illinois State employee, you have your work cut out for your when dividing up an Illinois state pension. Contact my Chicago, Illinois family law firm to schedule a free consultation with an experienced Chicago divorce attorney.