When you get divorced in Indiana, as a general rule, any assets that you own are subject to division between you and your spouse. Indiana is among a limited number of states that follow this “all property” rule (in other states, spouses can generally keep property they owned prior to their marriage), and it means that your retirement savings will likely be on the table in your divorce regardless of when and where you earned it.
Does this mean that your spouse is entitled to half of your pension, IRA or 401(k)? Not necessarily. While there is an initial presumption that divorcing spouses’ assets should be split 50/50, (i) a 50/50 split is not always going to be the most equitable, and (ii) there are ways to affect an equitable distribution besides splitting individual assets down the middle.
Before we discuss possible alternatives, let’s assume that you and your spouse agree to (or a court orders) a 50/50 split of your retirement account. If you have been married for a long time, your spouse has never worked and you do not have any assets of comparable value to your 401(k), this may be a reasonable resolution under Indiana law.
In order to address the rules and regulations that restrict who can receive distributions from most types of retirement accounts, you will need to execute what is known as a Qualified Domestic Relations Order (QDRO). A QDRO allows retirement assets to be transferred to a non-account-owner without the negative tax consequences that would otherwise come into play.
What if you are not yet drawing from your retirement account or receiving monthly payments from your pension? The solution is the same. In fact, this is the most common scenario. Pensions and retirement accounts become subject to equitable distribution at the time of vesting, and QDROs can be used to divide retirement assets that are vested but not yet being used for retirement.
While splitting retirement assets can be the best (and perhaps only) option in certain circumstances, there are alternatives that will frequently be in the best interests of both spouses. For example, if both spouses have retirement accounts of fairly equal value, it may make the most sense for each spouse to retain his or her own personal savings rather than splitting both accounts down the middle (again, assuming that a 50/50 split is appropriate). Or, if you and your spouse have other assets that are comparable in value to your retirement savings (such as real estate holdings or non-retirement investment accounts), you may be able to negotiate a resolution in which you spouse gives up his or her interests in your retirement assets in exchange for receiving other marital property.
Of course, these are simplified examples. In real life, property distribution can be much more complicated, and high-value retirement assets are often at the center of property-related divorce disputes. Questions regarding valuation, timing of distributions and other retirement-related issues can present unique challenges for divorcing spouses as well. But, with the potential long-term implications involved, taking the time to carefully and strategically address these issues can be critical to ensuring your financial stability after your divorce.
If you have questions about what a divorce would mean for your retirement savings, we encourage you to contact us for a complimentary consultation. Joshua R. Hains is an experienced divorce lawyer who represents individuals in divorce. To speak with Mr. Hains in confidence, please call (317) 688-1305 or request an appointment online today.