When a divorce becomes imminent, many people in Illinois begin to experience concerns about the financial impact that a divorce might have on their lives. This is understandable as there is no real way to split assets without losing something. Additionally, it is generally more expensive for people to live alone than as part of a married couple. Everything from daily living expenses to insurance costs may go up. Beyond that, the need to pay spousal support or child support can take an even bigger bite out of someone’s monthly budget.
According to the United States Department of Labor, the use of a qualified domestic relations order may allow people to use their 401K funds to make child support or alimony payments. This may give them some relief as it may ease their current financial burden by not relying on their regular income to satisfy thees debts.
A QDRO establishes the former spouse or a dependent as an alternate payee on a 401K account. Money can then be paid directly from the account to the alternate payee per the agreement. This may be in the form of lump sums or periodic payments. For alimony payments, the alternate payee is responsible for taxes if the money is not reinvested. For child support payments, the account owner is responsible for taxes.
If you would like to learn more about the use of retirement funds to satisfy divorce debts or responsibilities, please feel free to visit the qualified domestic relations order page of our Illinois family law website.