Retirement Benefits - The Law Office Of Robert B. Buchanan

Retirement Benefits

Whether you were a primary breadwinner or the primary caretaker, accruing retirement benefits most likely took commitment, sacrifice, and hard work. As your marriage comes to an end, you probably have questions about who is entitled to this special type of savings. Find out more below.

What Can We Teach You About?

Short Answer: It depends on when contributions were made to that particular fund. If contributions were made to the fund during the marriage then you are entitled to an equitable portion of those funds. An equitable portion is commonly 50%.

Longer Answer: 401k plans are analyzed under the same rules as all other property in a divorce. For a detailed breakdown of how property is analyzed, you can visit our previous post on the subject of division of property in a divorce. In a divorce, property is classified as belonging to one of three estates, the petitioner’s non-marital estate, the respondent’s non-marital estate, or the marital estate (property belonging to the marriage). Property can also be classified as having portions of multiple estates.

In terms of a defined-contribution retirement plan such as a 401k, it may be singularly classified as marital or non-marital, or there may be both non-marital and marital portions.

A 401k plan would be only marital if it were opened during the marriage and received funds which were also marital. In the vast majority of cases, wages and salary collected by one spouse during the marriage are considered marital. Therefore, your typical 401k opened during the marriage is 100% marital property.

A 401k plan would be classified as containing both non-marital and marital property if it received funds from both a non-marital and marital source.

For example, say Husband opens a 401k plan five years before he gets married and contributes $25,000, and his employer matches that contribution, so he has a total of $50,000 in his 401k. Husband then gets married and over the next ten years contributes $50,000, which is also matched by his employer, for a total contribution of $100,000 during the marriage. The husband now has $150,000 in his 401k plan.

Of the $150,000, the $50,000 contributed before the marriage is considered non-marital property. This property can only be claimed by the husband. The $100,000 contributed during the marriage is considered marital property to which Wife is entitled an equitable portion. While not always, an equitable portion is commonly placed at 50%, although this number should be scrutinized closely based on the relevant factors.

The above is example is admittedly overly-simplified. There is an additional analysis that must take place. Illinois divorce law lays out how property is classified when there has been commingling of non-marital and marital funds. This analysis requires a determination of whether there was a “loss of identity” of the contributed funds, and whether new property was acquired as a result of the commingling. This characterization of the commingling could have significant implications as to the size of the marital portion of a 401k retirement plan. For further reading, check out section 503 of the Illinois Marriage and Dissolution of Marriage Act.

Whether you are ready to divorce or already divorced, it’s important to understand what you may be entitled to.

To receive your ex-spouse’s Social Security benefits the following criteria must be met:

  • You were married to your ex-spouse for at least 10 years

  • Your ex-spouse is receiving (or will be receiving Social Security benefits)

  • You aren’t currently married

  • You are at least 62 years old

There are a couple exceptions to the criteria which may make you eligible, such as:

  • If your marriage did not last 10 years, but you are caring for your ex-spouse’s child who is less than 16 years old or is disabled.

  • If you are not 62 years old, but you are caring for your ex-spouse’s child who is less than 16 years old or is disabled. You may claim at any age if you fit into this exception.

  • You remarried, but are no longer married due to an annulment, divorce, or death.

  • You remarried after you turned 60 years old and your ex-spouse is deceased.

However, the caveat is that Social Security will not pay you double the benefits. This means that you will receive the greater of your benefit and half of your spouse’s benefit.

For example, Lucy and Bob were married for 30 years. Lucy is 65 years old and receives $1000.00 in Social Security benefits monthly. Bob is 67 years old and receives $200.00 in benefits monthly. Half of Lucy’s benefit, $500.00, is greater than Bob’s. Therefore, Bob could receive $500.00 a month instead of his $200.00 a month.

Social Security will not give Bob his $200.00 plus half of Lucy’s. It will give him one or the other.

Lucy cannot receive half of Bob’s benefit because her $1000.00 is greater than Bob’s $200.00.

Now let’s imagine that Lucy is 60 years old and Bob is 65. In this instance, Bob would have to wait until Lucy turns 62 to start receiving half of her benefits.

Perhaps the situation is more like this: Lucy is 54, Bob is 63, and their adopted child is 12. Even though Lucy is not 62 years old, she can still receive half of Bob’s benefit since she is caring for his child.