The Law Offices Of Anne Schmidt, LLC

Roth 401(k)s in Divorce: The Indivisible Marriage of Roth and Pre-Tax Contributions

2026-10-09T16:25:49Z

Involve an employee benefits attorney early, so the settlement agreement matches what the plan can actually do In Illinois divorces and across the country, a growing number of the marital settlement agreements (MSAs) reaching our office assign a specific amount of the Roth funds in a 401(k), often to offset a house buyout or other after-tax asset. On paper it looks like a clean trade: after-tax dollars for after-tax dollars. The trouble is that many 401(k) plans cannot carry it out. When the QDRO reaches the plan administrator, the plan divides the account its own way, and the parties discover after judgment that the deal they signed is not the deal they got. Almost every one of these problems could have been avoided by involving an employee benefits attorney before the agreement was finalized, so that the settlement agreement says what the plan can actually do.

Why this is coming up more often

Not long ago, most 401(k) balances were entirely pre-tax. Today, most plans offer a Roth contribution option, and recent legislation has accelerated the trend. SECURE 2.0 permits employers to make matching and nonelective contributions as Roth, and it requires catch-up contributions by higher-earning participants to be made on a Roth basis. As a result, it is now common to see a single 401(k) statement showing pre-tax deferrals, employer contributions, Roth deferrals, and sometimes rollover or after-tax money, all in one account.

Can a QDRO assign only the Roth portion of a 401(k)?

Inside the plan, each of those money types is tracked as a separate “source.” What the alternate payee receives from each source is governed by the plan’s written QDRO procedures, not by the settlement agreement. Plans generally fall into one of three groups:

Pro rata only. The award, whether stated as a dollar amount or a percentage, is taken proportionally from every source in the account. This is the most common approach, particularly at large recordkeepers.
Source selection permitted. The order may direct which sources the award comes from, including Roth only.
Limited selection. The plan allows some designation but restricts it, for example by requiring Roth and pre-tax money to be treated together.

A QDRO cannot require a plan to provide any type or form of benefit the plan does not otherwise offer (ERISA § 206(d)(3)(D)). If the plan only allocates pro rata, an order directing a Roth-only assignment will be rejected, or the award will simply be taken pro rata.

Roth vs. pre-tax 401(k) money in divorce: why the tax difference matters

Pre-tax 401(k) money is taxed as ordinary income when it is distributed, and money assigned under a QDRO is taxed to the alternate payee who receives it. Qualified Roth distributions, by contrast, come out tax-free. The alternate payee’s Roth share also has to stay in a Roth vehicle, rolled to a Roth IRA or a Roth account in another plan, to keep that treatment. So when the parties bargain for $100,000 of Roth money and the plan delivers a blend, the alternate payee receives less after-tax value than the settlement intended, and the participant keeps Roth dollars he or she expected to give up.

A common scenario The settlement agreement awards Wife “$100,000 of the Roth funds” in Husband’s 401(k) to offset Husband keeping the equity in the marital home. The plan, however, only divides accounts pro rata, so most of what Wife actually receives is pre-tax money she will pay income tax on when she withdraws it. Wife ends up with meaningfully less after-tax value than she bargained for, and Husband keeps Roth money he expected to give away. Neither party intended that result.

The cost of finding out after the divorce judgment

Too often, the retirement-plan side of a case is first addressed after the judgment has been entered, and that is when this issue comes to light: when the QDRO is drafted or submitted for pre-approval. At that point the parties must decide how to account for the different tax treatment of the pre-tax and Roth portions: what tax rate to assume, which party absorbs the difference, and how it gets paid. That requires analysis and calculations at additional cost, and if the parties cannot agree, it can mean post-decree motion practice and a delayed QDRO.

Involve an employee benefits attorney before the MSA is signed

Whether a Roth-only assignment is possible depends entirely on the specific plan’s QDRO procedures, and those vary widely. When we are involved before the settlement agreement is signed, we:

Review account statements that break out the pre-tax, Roth, and other sources, not just a total balance;
Confirm with the plan how it will allocate the alternate payee’s award; and
Work with counsel on settlement agreement language so the parties’ intended result holds up regardless of how the plan divides the account.

The goal is simple: a settlement agreement that matches what the plan can actually do. Language that works for one plan can fail for another. A review while the agreement is still being negotiated costs far less than unwinding the problem after judgment, and it lets the QDRO be prepared and approved without a post-decree dispute.

Call us early: retirement asset division done right

If your settlement involves a 401(k) with Roth money, especially where the retirement account is being used to offset a house, maintenance buyout, or other after-tax asset, please bring us in while the marital settlement agreement is still being negotiated, not after it has been entered. Anne Prenner Schmidt, Esq., J.D., LL.M. (Employee Benefits), brings experience from the U.S. Department of Labor’s Employee Benefits Security Administration and an Am Law 100 firm, and our office approaches retirement assets as an integral part of the settlement, not an afterthought. Based in Highland Park, Illinois, we work with family law attorneys, mediators, collaborative professionals, and divorcing spouses throughout Illinois and consult with attorneys nationwide on QDROs, QILDROs, and other retirement asset division orders. We will:

Review the plan’s QDRO procedures and confirm how the account will be divided;
Identify whether the proposed division will deliver the after-tax value the parties intend; and
Work with you on settlement agreement language that carries out the parties’ intent and reduces post-decree issues.

The earlier we are involved, the more likely the settlement agreement matches what can actually be done, and the fewer surprises there are for you and your clients. To schedule a consultation, call 847-926-7679. This article is for general information only and is not legal or tax advice. Tax consequences depend on individual circumstances; parties should consult a tax professional about their specific situation.

Can mediation work when your divorce has complex assets?

2026-09-01T08:05:54Z

Picture a divorce after 30 years of marriage. There is a house, a vacation home, a 401(k), a pension, a brokerage account and a folder of stock options nobody fully understands. When your finances look like that, settling everything at a conference table instead of a courtroom can feel unrealistic. Many people assume that the more valuable and tangled the assets, the more likely a case is to end up in court. Yet the size of your estate matters less than how you and your spouse approach dividing it.

Complex assets and the pull toward litigation

High-asset divorces involve more than a home and a bank account. Retirement accounts, deferred compensation, business interests, restricted stock and stock options each raise their own valuation questions. Valuation, though, is only half the problem. Some of these assets cannot be handed to a spouse by court order at all. Nonqualified deferred compensation and most stock option grants prohibit assignment, so an agreement has to divide their value another way, through an offset against other property or a promise to pay a share if and when the money is actually received. Illinois law adds another layer. Section 503(d) of the Illinois Marriage and Dissolution of Marriage Act directs the court to divide marital property in just proportions rather than by an automatic even split, weighing factors that include the length of the marriage, each spouse's finances and the tax consequences. Because the result depends on how a court classifies and values each asset, couples with large estates often assume a judge must sort it all out. That same analysis, though, can happen privately.

Mediation's role in dividing high-value property

Mediation gives you and your spouse control over the outcome instead of handing those decisions to a judge. A mediator is a neutral facilitator who guides the conversation and helps both sides reach a workable agreement, though a mediator generally will not give legal advice or decide how to split your property. Settling a divorce through mediation still requires each spouse to understand what everything is worth, which is where outside help becomes valuable. Couples can jointly hire neutral valuation experts, such as a business appraiser or a divorce financial analyst, to put reliable numbers on the table. Retirement assets are worth handling the same way. A neutral retirement expert can value the plans, explain what each one can and cannot do, and draft the orders that will divide them, so both spouses are working from the same set of numbers and neither is guessing about what the settlement actually delivers. Retirement plans add a wrinkle, and it is a bigger one than most people expect. A 401(k) or similar workplace savings plan is divided by a qualified domestic relations order, usually called a QDRO, which is entered alongside the judgment and tells the plan administrator how much to pay the person receiving the share. That person does not have to be a former spouse. A current spouse, a child or another dependent can also be named. A QDRO, though, is one instrument in a family of them, and the right one depends entirely on the plan. An Illinois public pension is not divided by a QDRO at all. IMRF, SURS, the Teachers’ Retirement System and municipal police and firefighter funds are divided by a QILDRO, which is created by a separate Illinois statute and carries its own consent, form and timing requirements. A federal civil service annuity takes a court order acceptable for processing, or COAP. Military retired pay is divided under its own federal rules. An IRA is not divided by any of these; it moves by transfer incident to divorce. Using the wrong instrument, or using the right one with language the plan will not accept, is one of the most common reasons a case everyone thought was finished comes back a year later. Survivor benefits deserve their own conversation before anyone signs. An agreement that says one spouse receives half the pension, without saying who is protected if the employee dies first and who pays for that protection, is not a finished agreement. On a defined benefit pension, the choice between a shared interest and a separate interest, and the allocation of the pre-retirement and post-retirement survivor annuities, changes what that half is actually worth. Several of those elections become irrevocable once the employee retires, and some plans will not allow them to be corrected after judgment at all. This is the detail most often left out of a settlement reached without retirement counsel at the table. The tax rules are worth understanding as well. A spouse who receives a share of a 401(k) can roll it into an IRA and keep it tax-deferred. A spouse who needs cash instead can take that share directly from the plan under the QDRO and avoid the ten percent early distribution penalty that would otherwise apply before age 59½, an exception that disappears the moment the money is rolled into an IRA. A defined benefit pension works differently again. It generally pays as a monthly annuity for life, so in most cases there is nothing to roll over and the rollover question never arises.

The good-faith test every mediation faces

Mediation is not right for every couple. It works only when both spouses are willing to disclose everything honestly and bargain in good faith. If one spouse hides income, undervalues a business or refuses to cooperate, the process can stall, and a more structured approach may become necessary. Good faith also means producing the paper. Plan statements, summary plan descriptions, benefit estimates, grant agreements and vesting schedules all have to be on the table. Figures offered from memory are not disclosed. Complex finances do not doom mediation, but a spouse determined to fight often does.

The right process for your financial future

The deciding factor in a high-asset divorce is rarely the assets themselves. It is whether you and your spouse can approach the split as a problem to solve together rather than a battle to win. When you can, mediation often delivers more privacy and lower cost than a courtroom fight, even with a complicated estate. Before you commit to any path, take stock of your full financial picture, from retirement accounts and stock options to business interests and real estate. Knowing what is truly on the table is the first step toward choosing the process that will protect it. And if retirement plans are a meaningful part of that picture, bring someone into the process who drafts the orders that divide them. The terms are far easier to get right while the agreement is still being written than to repair after it is signed.

Why retirement assets deserve special attention — especially for women in divorce

2026-02-18T20:31:53Z

In many divorce settlements, retirement assets are addressed in a single paragraph near the end of the agreement: “The accounts shall be divided equally by Qualified Domestic Relations Order.”

On paper, that sounds straightforward.

In practice, it rarely is.

For many families, retirement accounts and pensions are the most valuable assets accumulated during the marriage. They often represent decades of earnings, deferrals, and long-term planning. Yet they are frequently divided without careful discussion of how they actually function.

This is particularly significant for women.

Statistically, women are more likely to experience career interruptions, reduced earnings due to caregiving responsibilities, and longer life expectancy. That combination means retirement income often plays a more critical role in long-term financial stability. What appears to be an abstract percentage in a divorce judgment may ultimately determine housing options, healthcare access, and independence decades later.

And not all retirement assets operate the same way.

A pension is not simply an “account balance.” It is a lifetime income stream governed by plan rules, retirement age assumptions, survivor benefit elections, and statutory limitations. A 457(b) plan does not function identically to a 401(k). Non-qualified deferred compensation plans may carry distribution restrictions and risk components that materially affect value. Illinois public pensions require QILDROs, which operate differently from ERISA-governed plans.

Even when division percentages are agreed upon, the drafting mechanics matter:

Is the award structured as a separate interest or shared interest?
Are gains and losses included?
How are post-judgment contributions treated?
Is the coverture fraction properly defined?

Has the survivor benefit been addressed, particularly in light of plan-imposed caps?

These are not technicalities. They determine how and when retirement income is actually received — sometimes decades into the future.

Retirement division should be approached thoughtfully, not administratively. For women in particular, ensuring that retirement assets are evaluated with nuance and precision can mean the difference between long-term stability and unintended vulnerability.

Once a judgment is entered and a plan processes an order, correcting mistakes can be difficult — and in some cases, impossible.

Retirement assets deserve careful analysis. Often, they are the most valuable asset in the marital estate.

Alternative Assets in 401(k) Plans: A Dangerous Gamble with Your Retirement

2025-08-22T17:23:55Z

The Trump administration’s recent executive order directing the Department of Labor to open 401(k) plans to alternative investments like private equity and cryptocurrency may sound appealing, but from a legal perspective, this policy shift creates serious problems for plan sponsors and puts workers’ retirement savings at unnecessary risk.

What’s Happening

On August 7, 2025, President Trump signed an executive order called “Democratizing Access to Alternative Assets for 401(k) Investors.” The order tells the Department of Labor to make it easier for 401(k) plans to offer investments like private equity, real estate funds, and cryptocurrency—investments that have traditionally been available only to wealthy individuals and institutions.

The administration argues that regulatory barriers have unfairly prevented 90 million Americans from accessing these potentially lucrative investments. But there’s a big problem with this logic.

The Legal Problem for Plan Sponsors

Under federal law (specifically ERISA), companies that sponsor 401(k) plans have a legal duty to act like prudent experts when choosing investments for their employees. They must put workers’ interests first and choose investments that are appropriate and reasonably priced.

This becomes nearly impossible with alternative investments because they are:

Hard to understand: Private equity deals are complex and secretive—you can’t just look up their value like you can with a stock
Extremely expensive: While a typical stock fund charges about 0.5% in fees, private equity typically charges 2% plus takes 20% of any profits
Risky and illiquid: Your money can be locked up for years with no guarantee of returns

How can a plan sponsor fulfill their legal duty to choose prudent investments when they can’t properly evaluate what they’re buying?

The Worker Protection Problem

Federal retirement law exists to protect ordinary workers who aren’t investment experts. Most 401(k) participants don’t understand the difference between stocks and bonds, let alone complex private equity structures.

Introducing these sophisticated investments to everyday workers could be disastrous. The promise of “getting rich” in private markets could lead people to put too much of their retirement savings into investments they don’t understand, potentially wiping out decades of careful saving.

There’s also a quality issue: the best private equity deals go to big institutional investors. What’s left for 401(k) plans are likely the investments that sophisticated buyers don’t want.

Legal Risk Hasn’t Gone Away

While the executive order signals political support for these investments, it doesn’t change the underlying legal standards. If workers lose money in alternative investments, companies can still be sued for breach of their legal duties.

The complexity of these investments makes it much harder and more expensive for companies to defend their decisions, requiring:

Extensive expert analysis
Specialized consultants
Complex monitoring systems
Detailed worker education programs

A Safer Approach

Instead of rushing into complex alternatives, plan sponsors should stick to what works: low-cost, diversified funds that workers can understand, combined with good education about retirement saving basics.

If alternative investments are offered at all, strict protections should be required:

Limit them to no more than 5-10% of someone’s account
Require extensive education before workers can invest
Cap the fees these investments can charge
Require regular monitoring and reporting

Bottom Line

While giving workers access to more investment options sounds good in theory, the reality is that most alternative investments are complex, expensive, and inappropriate for typical retirement savers.

Companies sponsoring 401(k) plans should be very cautious about adding these investments, regardless of political pressure. Their primary legal obligation is to protect workers’ retirement security, not to provide access to every investment product Wall Street wants to sell.

The safest and most prudent approach remains simple: stick to low-cost, diversified investment options that workers can understand and that have a long track record of helping people build retirement wealth. When it comes to retirement savings, boring is often better.

Disclaimer: The author is an ERISA attorney, not a financial advisor. This article is intended for informational and educational purposes only and does not constitute legal or financial advice. Readers should consult with qualified legal and financial professionals regarding their specific circumstances.

When Love Isn’t Enough: Protecting Same-Sex Families Legally

2025-08-21T14:51:34Z

Despite overwhelming public support for marriage equality, lawmakers are pushing to overturn Obergefell. As an employee benefits attorney and ally, I want to help same-sex couples protect their families against this political assault.

The American people have spoken clearly—69% support marriage equality—yet anti-equality politicians continue their assault on loving families. Justice Clarence Thomas has explicitly called for reconsidering the Obergefell decision, and Republican lawmakers in nine states are actively pushing resolutions urging the Supreme Court to reverse marriage equality, despite knowing this goes against the will of the people.

With 32 states maintaining constitutional bans on same-sex marriage that would become enforceable if federal protections disappear, loving families face having their legal recognition stripped away. If same-sex marriage protections are dismantled, couples could lose spousal recognition, federal marriage benefits, parental rights, medical decision-making authority, and property inheritance protections.

Employee Benefits: My Area of Expertise

In my employee benefits practice, I've seen how devastating it can be when couples haven't properly protected their workplace benefits. Without marriage recognition, your spouse may not automatically access benefits that married couples take for granted.

Health Insurance and Tax Implications Employer-sponsored health insurance represents one of the most immediate concerns. While many employers extend benefits to same-sex partners, federal tax advantages for spousal coverage depends on marriage recognition. If marriage equality is overturned, the tax treatment of your partner's health coverage could change dramatically.

Critical Beneficiary Updates Your employee benefit accounts need explicit beneficiary designations that don't rely on marriage status. For 401(k) and 403(b) plans, federal law typically gives spouses automatic rights, but these protections could disappear. Life insurance through your employer requires specific beneficiary designations—without proper paperwork, benefits could end up in probate or with unintended recipients.

Pension plans present unique challenges with complex spousal benefit elections that must be made during specific time periods. If you haven't made these elections or marriage recognition disappears, your partner could lose significant monthly income for life.

Social Security Vulnerability Social Security represents one of the most significant potential losses. Spousal benefits allow a lower-earning spouse to receive up to 50% of their partner's benefit, and survivor benefits provide substantial monthly income after one spouse dies. These benefits depend entirely on marriage recognition and cannot be transferred through beneficiary designations.

Other Essential Protections: Working with the Right Attorneys

While employee benefits are my specialty, same-sex couples need comprehensive protection across multiple legal areas. I work with experienced attorneys in various fields and can connect families with the right professionals.

Step-Parent Adoption: Your First Priority The most critical protection is step-parent adoption for any children where only one parent has legal rights. This creates a legal parent-child relationship that exists independently of marriage and cannot be revoked. I can refer you to experienced family law attorneys who specialize in LGBTQ+ adoption cases and understand the urgency of completing this process.

Estate Planning and Healthcare Decisions Comprehensive estate planning requires coordination between employee benefits and other assets. Your will should explicitly name your partner as beneficiary, and revocable living trusts can help avoid probate complications. Healthcare powers of attorney grant your partner the legal right to make medical decisions when you cannot and ensure hospital access during emergencies.

Legal Contracts and Property Protection Cohabitation agreements can establish rights and obligations that may not be recognized if federal protections disappear. For real estate, joint tenancy with rights of survivorship provides important protection for your primary residence and other property.

Taking Action Now

Begin immediately by reviewing all your employee benefits and updating beneficiary designations with detailed partner information. Schedule consultations with attorneys for step-parent adoption if you have children, and execute healthcare powers of attorney and estate planning documents.

Maintain comprehensive records of all legal documents with certified copies stored in multiple secure locations. Schedule annual reviews to update documents as laws and circumstances change, and don't wait for political situations to worsen before taking protective action.

Moving Forward with Confidence

While politicians targeting families continue their cruel assault on LGBTQ+ rights, comprehensive legal planning can provide security regardless of political outcomes. In my employee benefits practice, I've seen how proper planning provides not just financial security, but peace of mind that every family deserves.

Preparation isn't about pessimism—it's about empowerment. Every family deserves legal security and recognition. While I cannot control political outcomes, I can offer my expertise in employee benefits law to help LGBTQ+ families protect their workplace benefits, and I can connect you with trusted colleagues who specialize in the other legal protections you need.

The steps outlined here can help ensure that politics will not undermine the legal security that every loving family should have, regardless of what lawmakers defying public opinion attempt to force upon American families.

As an employee benefits attorney and ally, I'm here to help you protect your workplace benefits and connect you with experienced attorneys for other legal needs. Contact me at anneschmidtlaw.com to discuss your employee benefits planning and get referrals to trusted colleagues for comprehensive family protection.

How to Make Sure a Prenup Is Enforceable

2025-03-19T17:55:53Z

A prenuptial agreement can be a smart choice for a couple about to get married. A prenup can help a couple decide how to split up their marital property, in the event of a divorce, if they decide against splitting it up 50-50. This can be especially enticing to a spouse entering the marriage with more property, or if they are likely to earn more during the marriage. But a prenup does not guarantee that a spouse can automatically keep everything. Just because the prenuptial agreement is drafted and signed before the marriage does not mean that the courts will enforce it after the divorce.

In section seven of the Illinois Uniform Premarital Agreement Act, there are circumstances in which a prenuptial agreement will not be enforceable.[1] This would happen when it causes a party “undue hardship in light of circumstances not reasonably foreseeable at the time of the execution of the agreement”.[2] This means that a court will not hold up a prenuptial agreement if, due to unforeseen circumstances, if it will cause too much suffering for one of the spouses.

1. Undue Hardship

The threshold for undue hardship is relatively difficult to meet. It does not just mean that the spouse will now be in a worse financial position than before. The court defined undue hardship in In re Marriage of Amyette, where it said that when a payee’s fundamental financial insolvency, after divorce, is mathematically demonstrable as being very likely unable to avoid homelessness, or even a life in sub-standard housing, there is an undue hardship.[3]

Despite the sub-standard housing verbiage at the end, the undue hardship burden is hard to prove. Even a drastic change in lifestyle following a divorce can be insufficient. In the case of In re Marriage of Barnes, Sandra Barnes went from being a housewife married to a CEO making over $250,000 a year plus perks to working a clerical job earning $24,000.[4] Even though her household income was now less than one-tenth what it used to be, the court denied her claims of undue hardship.[5] To prove that there is undue hardship, the spouse has to show that they have been left basically destitute by the prenup.

A lack of disclosure is also not a sure bet when trying to prove that a prenup is unenforceable. In the case of In re Marriage of Woodrum, the wife tried to stake her unenforceability claims on the fact that her husband had not provided a full disclosure of all his assets during the agreement.[6] She lost however because full disclosure is not required, there just needs to be a ‘fair and reasonable’ disclosure.[7] As long as the spouse receives sufficient knowledge of the other spouses financial situation, they do not need to be notified of every single asset the other spouse owns.

In order for the prenuptial agreement to be unenforceable, it will likely have to be shown to be unconscionable or agreed to under duress. In In re Marriage of Sarancic, the agreement was unenforceable because of its unconscionability.[8] The court held that it was both procedurally unconscionable and substantively unconscionable.[9] It was procedurally unconscionable because the wife knew limited English and as such did not have a good enough grasp on what she was agreeing to, and it was substantively unconscionable because of how little the wife would be left with in the end.[10] The husband had a net worth between $750,000 and $1 million while the wife did not work.[11] The agreement would give the wife, only because the marriage lasted over 5 years, $30,000, while waiving any property division or maintenance.[12]

2. Reasonably foreseeable

The ‘reasonably foreseeable’ language is just as important as undue hardship when it comes to enforceability. Reasonably foreseeable is less cookie cutter than undue hardship, it is more related to the specific facts of each case. One aspect that can affect how reasonably foreseeable a hardship is, is how reasonably foreseeable a divorce would be in the first place. If it is a young couple that are both being married for the first time, anything in the prenuptial agreement could be argued to be not reasonably foreseeable because the couple is so sure that they will spend the rest of their lives with each other. Meanwhile, if it is the wife’s third marriage and the husbands fourth, it might be harder to claim that a divorce was unforeseeable, even if both of them really are thinking this time is the one. This situation reared its head in In re Marriage of Barnes where it had been the agreement for the husband’s fifth marriage that was being contested.[13] The court stated that this fact made the divorce reasonably foreseeable.[14]

A prenuptial agreement is a contract that can lead to a lot of heartache and a lot of litigation. It can seem like a good insurance policy for someone coming into a marriage with a lot, but it can easily become unenforceable if it leaves their spouse with too little. Plus this nebulous standard gets even murkier when the reasonable provision is added. While the concept of a prenup is simple, the execution can be anything but.

[1] Illinois Uniform Premarital Agreement Act [2] Id. [3] In re Marriage of Amyette, 2023 IL App (3d) 200195, ¶ 29, 471 Ill. Dec. 775, 782, 229 N.E.3d 526, 533 [4] In re Marriage of Barnes, 324 Ill. App. 3d 514, 516, 258 Ill. Dec. 139, 142, 755 N.E.2d 522, 525 (2001) [5] Id. [6] In re Marriage of Woodrum, 2018 IL App (3d) 170369, ¶ 52, 426 Ill. Dec. 99, 118, 115 N.E.3d 1021, 1040 [7] Id. [8] In re Marriage of Sarancic, 2020 IL App (1st) 191817-U, ¶ 39 [9] Id. [10] Id. [11] Id. [12] Id. [13] In re Marriage of Woodrum, 2018 IL App (3d) 170369, ¶ 52, 426 Ill. Dec. 99, 118, 115 N.E.3d 1021, 1040 [14] Id. Joseph Neubauer, Guest Blog Post

How to Avoid Probate: Effective Strategies for a Seamless Transaction

2025-02-21T16:33:09Z

Probate is a legal process that occurs after someone passes away. It involves the court’s verification of a will, ensuring that it is valid, and that the person named as executor (a person appointed to mandate the deceased person’s estate during the probate process) has the authority to manage the deceased’s estate. Essentially, probate confirms that the deceased person’s wishes, as outlined in their will, are honored.[1] Although the probate process is a necessary procedure for many estates, the process can be lengthy, costly, and public which leads many individuals to seek ways to avoid it. For these compelling reasons, many individuals may want to avoid probate.

Breakdown of How Probate Works

The probate process can vary significantly on whether the deceased left a will (testate) or did not leave a will (intestate) and varies depending on the state. However, the steps below are generally as followed:

Initiation of Probate: The probate process typically is initiated by filing a petition in the court of the proper county. [2] If there is no will, an administrator may be appointed by the court to oversee the estate.[3] The executor or administrator must submit documents such as the original will (if applicable), a petition for probate, or death certificate to initiate probate proceedings.
Validating the Will: If there is a will present, one of the first tasks in probate is to validate it.[4] Which involves confirming that the documents meet all legal requirements for authenticity and that it reflects the true intention of the deceased.
Appointment of Executor or Administrator: Once a will is validated, or if there is no will, the court formally appoints an executor or administrator. This individual gains legal authority to act on behalf of the estate and must fulfill the responsibilities throughout the probate process.[5]
Inventorying Estate Assets: The executor or administrator must compile an inventory of all assets owned by the deceased at their time of death.[6]
Paying Debts and Taxes: Before distributing any assets to beneficiaries, debts and taxes owed by the deceased must be settled.
Distribution of Assets: After all debts and taxes are paid, remaining assets can be distributed according to either the terms outlined in a valid will or state intestacy laws if there is no will.

Effective Strategies to Avoid Probate

Establish a Revocable Living Trust: One of the most effective ways to avoid probate is by creating a revocable living trust. This legal entity allows you to transfer ownership of your assets into the trust while you are alive. You retain control over the trust assets, including the power to revoke or amend the trust, as long as the trust document expressly provides for such powers. Upon your death, the assets held in the trust do not go through probate; instead, they are distributed directly to your named beneficiaries according to your instructions.[7]
Joint Ownership with Right of Survivorship: Joint ownership with right of survivorship allows two or more people to own property together. When one owner dies, their share automatically passes to the surviving owner(s) without going through probate. This method is commonly used for real estate but can also apply to bank accounts and other types of property. It’s crucial that the title clearly states “joint tenants with rights of survivorship” to ensure this outcome.[8]
Designate Beneficiaries on Financial Accounts: Many financial accounts allow you to designate beneficiaries using a pay-on-death (POD) arrangement.[9]This means that upon your death, the funds in these accounts will go directly to the designated beneficiary without entering probate. This applies not only to bank accounts but also to retirement accounts like IRAs and 401(k)s, as well as life insurance policies.
Make Gifts During Your Lifetime: Transferring ownership of certain assets as gifts while alive can help reduce probate after death by removing those assets from the decedent’s estate, thereby avoiding the probate process for those particular assets. It is crucial to note that the Internal Revenue Service (IRS) allows individuals to give gifts up to a certain amount each year without incurring gift tax or affecting their lifetime estate tax exemption. Further information on the IRS Estate and Gift Tax can be found on irs.gov .
Utilize Transfer-on-Death Deeds for Real Estate: Some states allow property owners to execute transfer-on-death (TOD) deeds for real estate, which enables them to name beneficiaries who will receive the property upon their death without going through probate.[10]

Conclusion

By employing these strategies effectively, individuals can significantly reduce or eliminate their estates’ exposure to probate court processes. Engaging a qualified legal advisor not only simplifies the complexities surrounding estate management but also provides peace of mind by ensuring that one’s wishes are honored why minimizing potential delays and costs associated with probate.

[1] London & Lancashire Indem. Co. v. Tindall, 377 Ill. 308, 311-312 (1941). [2] 755 ILCS 5/6-2 Petition to admit will or to issue letters. [3] 2 Illinois Estate Planning § 23.12 (2024) [4] 755 ILCS 5/6-4 Admission of will to probate – testimony or affidavit of witnesses. [5] 755 ILCS 5/6-3 Duty of executor to present will for probate. [6] 2 Illinois Estate Planning § 24.01 (2024) [7] Shakman v. Dep’t of Revenue, 2019 IL App (1st) 182197, ¶27. [8] 765 ILCS 1005/1b [Estate with right of survivorship] [9] 205 ILCS 625/4 Payable on Death Account Incidents. [10] 755 ILCS 27/40 Requirements. Isabella R. Hernandez, Guest Blog Post

QDROs, Death and the Grim ReaperCussions

2026-05-20T19:09:03Z

During a divorce, parties often have employer sponsored retirement accounts to assign pursuant to their marital settlement agreement. To assign these accounts incident to divorce, the parties must enter a Qualified Domestic Relations Order (“QDRO.”) A QDRO is a domestic court order that allows sponsors of qualified retirement plans such as 401(k)s to transfer accrued employee retirement directly to a spouse, former spouse, child, or other dependent without facing penalties[1].

A rightful concern of many people going through a divorce is what will happen to the retirement they were awarded during the dissolution of their marriage or settlement agreement if a QDRO was not entered in court in a timely fashion; and the participant in the employer sponsored plan passes away before the QDRO is entered into court and processed by the Plan Administrator.

To address this concern, Congress in 2006 passed bipartisan legislation called the Pension Protection Act, detailing in 29 C.F.R 2530.26, “A domestic relations order issued after the Participant’s death, divorce, or annuity starting date, or subsequent to an existing QDRO, will not fail to be treated as a QDRO solely because of the timing of issuance”. While hopeful that this regulation would provide some protection to the alternate payee (the party receiving the share of the retirement), depending on the plan type and property award, a posthumous QDRO might not accomplish the intent of the parties’ Settlement Agreement and leave the alternate payee scrambling in probate in hopes to receive what was assigned to them in the divorce.

For example, let’s say the wife (alternate payee) was assigned 50% of an account with a $200,000 balance as of the parties’ dissolution and no QDRO was entered into court or received by the plan prior to the participant’s death (account holder.) As the plan would have no knowledge of the divorce or property award to the former spouse, upon hearing of the participant’s death, the plan will direct the account balance to be paid the participant’s beneficiaries on file.

This could put the former wife in a difficult situation if she is not included in the participant’s estate forcing her to argue for her awarded share posthumously. To further complicate matters because the plan is subject to ERISA, federal preemption could force the argument into federal court, further delaying and complicating the alternate payee from receiving her awarded share incident to divorce. While life events are not necessarily foreseeable, we do have a few tips to help attorneys and litigants combat post-decree litigation when dealing with posthumous QDROs.

1. Contact the Plan Administrator as soon as an agreement has been reached between the parties: Letting the administrator know that a QDRO is imminent forces a hold on the participant’s account and prevents the plan from paying to beneficiaries as they await a court order. While sending a draft QDRO for pre-approval is important for placing a hold on the account, it’s important to follow through with getting the final document entered into court and sent to the administrator. An entered court order alone is not enough, the order must be sent and processed by the plan.

1. Do not let perfection get in the way of progress: If there is knowledge that a participant is ill, or a worry about their lifestyle, sending a draft of an agreement or the parties’ marital settlement will suffice while you draft a document that gets entered and approved by both the plan and the court.

1. Once a death happens, act quickly to get the QDRO entered into court and sent to the administrator: Alternate Payees should work quickly to add the Participant’s estate to the divorce proceedings, making them a liable party. By adding a proper representative, the estate will have notice to prevent an improper payout, and the beneficiaries will not take an improper distribution. It is always easier to freeze money in a plan account than to try to get it back from a beneficiary once received.

Our office is ready to assist you, no matter the stage of your dissolution. Please reach out early to understand the retirement assets in your marital estate and we can continue to consult and advise as you move through your divorce and finally draft the QDROs and DROs you need to properly assign the benefits to each party.

[1] The assignment of retirement assets incident to divorce is detailed by the agencies and regulations of the Department of Labor (“DOL”), Internal Revenue Service (“IRS”) and federal laws detailed in the Employee Retirement Income Security Act (“ERISA.”) Emma Zurek, Law Clerk Anne Prenner Schmidt, Esq.

Divorced in a Sunbelt State, But Have an Illinois Pension Interest?

2025-01-15T19:00:12Z

Did you recently complete a divorce in Arizona, Florida, or Texas but you or your spouse earned a pension benefit from the state of Illinois? If you or your ex-spouse participated in an Illinois State Pension like TRS, IMRF, PABF, FABF, SURS, SERS, JRS or any other Illinois State Pension, you may be learning that the State Pensions here will not accept your Divorce Decree/Judgment as filed in your home state to divide or assign your pension.

What does this mean if you were assigned a portion of your ex-spouse participant’s pension in your divorce documents? It means you will first need to enroll your divorce here in Illinois before a Qualified Illinois Domestic Relations Order or QILDRO, which secures your rights to a portion of the pension as an alternate payee, can be accepted and processed by the pension.

To divide the Illinois State Pension, a QILDRO (and in many cases a consent form) is required to be signed and entered in an Illinois state court. Enrolling your foreign judgment (out of state divorce decree) is the first step for an Illinois court to execute and enter your QILDRO.

Our office is here to help effectuate the intent of your dissolution agreement. As a firm that specializes in retirement assignment, we can file your divorce decree from your home state with an Illinois court. This is called a “foreign enrollment.” Enrolling a foreign judgment is to domesticate a judgment entered by a court in another state or country. This will allow the Judgment to be honored as an Illinois judgment and enforceable under Illinois laws. To accomplish this, we make all the necessary appearances, motions, signatures and certifications so the pension can be properly assigned per your out-of-state divorce agreement.

To learn more about this process and what is needed for your Foreign Enrollment, please reach out to us and we will be happy to send you more details.

Cheri McIntyre, MBA, CDFA® Anne Prenner Schmidt, Esq.

Unique challenges of LGBTQ+ divorce Federally and in Illinois

2023-12-28T19:02:48Z

The first steps of protecting LGBTQ+ federal benefits came with United States v. Windsor in 2013, which declared that the Defense of Marriage Act (DOMA) violated the 5th amendment. This determined that the government cannot discriminate against LGBTQ+ couples when determining federal benefits and protections, paving the way for Obergefell v. Hodges. Passed in 2015, Obergefell v. Hodges determined that states’ banning same-sex marriage carried out in other states are unconstitutional, violating the 14th amendment. Both of these Supreme Court cases were extremely important for protecting LGBTQ+ couples in marriage and divorce. While these cases reflect federal protection, Illinois was ahead of the time by passing the 2013 Religious Freedom and Marriage Act that ensured that all married parties have access to the same benefits, protections and responsibilities under the law in Illinois (750 ILCS 80/10). While the passing of this bill, and the legalization of same-sex marriage in Illinois and federally was a significant step towards equality, same-sex couples still encounter some distinctive issues when navigating divorce. The legal landscape and societal attitudes are still evolving. Same-sex couples considering divorce should be aware of the legal ambiguities and personal challenges that can arise during divorce proceedings, including the following:

1. Difficulties with the division of assets

Statistically, same-sex couples enter into marriage 3 to 5 years older than heterosexual couples. This can mean that many couples may have acquired significant assets before marriage. Courts may struggle to determine what they should consider marital property and what remains separate. In anticipation of these struggles, one should consider a pre-marital or post-nuptial agreement.

2. Gray Area with Retirement Benefits

Just as dividing assets can be difficult, there are some uncertainties with Employer sponsored retirement benefits in the years prior to United States v. Windsor and Obergefell v. Hodges. Many companies are required to follow ERISA (Employee Retirement Income Security Act), unless the plans are state/federal government sponsored or a church organization. Prior to United States v. Windsor, ERISA was not required to protect same-sex couples as it followed DOMA which only protected the marriage between a man and women. It was only after United States v. Windsor that ERISA was modified to include same-sex marriages. Thus, for any couple in a state that legalized same-sex marriages prior to U.S. v. Windsor, there could be uncertainty over how plans handle retirement benefits for any years where the marriage was legally recognized on a state level, but not Federally. There could be even greater uncertainty for companies that don’t follow ERISA, where the decisions are entirely up to the plan (and the plan may still not recognize same sex marriage.)

3. Complexities with custody battles

If same-sex couples have used assisted reproductive technology or adoption to build their family, it can be a challenge to determine parental rights and responsibilities. Child custody and visitation arrangements may not be as straightforward if neither spouse is biologically related to their children or if the parties were nonchalant about listing both parents on a birth certificate. Different states have different laws surrounding birth certificates and same-sex parents. While some allow for both parents to be listed, others may require a court order or post-birth adoption process. Moreover, some states have restrictions depending on marriage status, meaning that same-sex couples not married at the time of adoption may not have been allowed to put their names on documentation but rather the names of the birth parents. These scenarios can complicate custody battles.

4. Discrimination from peers

Discrimination can still be a concern for same-sex couples during a divorce. They may encounter bias or insensitivity from some professionals, family members or even within the court system. It is important to work with professionals who are sensitive to these issues and honor that all families do not look the same.

5. Loss of support systems

Many same-sex couples rely on close-knit support systems within the LGBTQ+ community. Divorce can strain these relationships. Individuals may need to seek out support from counselors or mental health professionals. Although there has been legal and societal progress toward equity for the LGBTQ+ community, same-sex couples may still need to be vigilant and proactive to receive the same rights, respect and support as their heterosexual counterparts when it comes to divorce proceedings. Our firm is experienced in the nuances involved in same-sex divorce/ dissolutions and committed to easing these challenges with minimal stress involved. If you are struggling with any of these challenges and need support, we are here to help. Emma Zurek, Law Clerk Anne Prenner Schmidt, Esq.