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Dividing Pensions and Retirement Accounts in an Indiana Divorce

On Behalf of | May 5, 2021 | Family Law

When a couple files for divorce in Indiana, equitable distribution laws impact the division of all marital property including pensions and retirement accounts unless the couple has a prenuptial or postnuptial agreement.

Indiana Equitable Distribution Laws

When a married couple decides to divorce in some states, marital property, assets, and debts are divided evenly in a 50/50 split. However, in Indiana, equitable distribution laws have different requirements. When a marriage dissolves, all marital property, assets, and debts, as well as pensions and retirement accounts, are divided  equitably between both spouses. Indiana law considers pension and retirement accounts as marital property unless spouses have a legal prenuptial or postnuptial agreement in place.

Equitable distribution is a legal method of dividing marital property during a divorce. In the United States, all but nine states including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin follow the principles of equitable distribution. This legal process can be challenging during a divorce, especially for couples who have built up substantial pension and retirement accounts. When couples work with divorce lawyers, they are often surprised to find out that pension and retirement funds are considered marital property under Indiana laws.

Under United States regulations, courts asses the division of property, assets, and debts under two different systems: community property or equitable distribution. In community property states, the court assigns an equal 50/50 split of all “marital property,” property acquired during the marriage. In equitable distribution states, the court may consider more assets as “marital property,” but the split is not necessarily 50/50. The court looks at other factors. In some cases, the judge may order one spouse to use his/her separate property to make the settlement fair to both spouses.

Without divorce lawyers who understand equitable distribution laws, spouses filing for divorce may be confused about the division of marital property and assets. In some cases, the court may award a percentage of the total value of the property to each spouse. When this happens, each spouse receives personal property, assets, and debts with worth that adds up to an assigned percentage. If spouses can not agree upon the value, the court will assign a monetary value to each item of property. When pensions and retirement accounts are involved, the court may request assistance from a professional financial analyst or C.P.A. for accurate evaluations.

Division of Pension and Retirements Accounts

In Indiana, equitable distribution laws play a significant role in the division of pension and retirement accounts. These types of funds are considered marital property and subjected to fair distribution by the court. When spouses are in a long marriage, pensions, 401Ks, and other retirement accounts can account for a substantial percentage of marital assets.

Dividing pension and retirement accounts during a divorce can be complicated and confusing without Indiana divorce lawyers to oversee the equitable distribution process according to Indiana laws. There are practical guidelines that can make the process a little easier and less stressful.

Undergoing an Audit

To fully understand and assess pension and retirement accounts, an audit may be necessary to get an accurate picture of current and future values. A thorough examination should be done for all accounts for both spouses. Typical accounts may include:

  • Employer-contributed 401(k)s
  • Self-employed 401(k)s
  • Simple IRAs
  • Pension plans
  • Profit-sharing plans (PSP)

Pension plans, often referred to as defined benefit plans, are unique because they promise employees a set amount of retirement benefits for life. They are different from defined contribution plans such as 401(k)s, because employees do not contribute to the funds. Instead, employers are responsible for making contributions on the employee’s behalf. Earnings on these investments then fund income for the employee during retirement. Today, most public sector employers offer pension plans, while private-sector employers offer 401(k)s. Common types of pensions include military pensions, state and federal government pensions, and teachers’ pensions.

Indiana divorce lawyers can be especially helpful in determining the details of a pension plan such as how benefits will be distributed and if the plan includes a survivor’s benefit. Some plans have lump-sum payments, while others have monthly payments. In some cases, pension plans have a single-life payout where benefits cease upon death or a joint-life payout where payments continue until the spouse’s death.

Divorce lawyers can work out an agreement where both spouses share the monthly annuity payments (or lump-sum payment) during retirement, or where both spouses divide the present value of the pension at the time of the divorce. Either way, it is essential to know what the pension plan is worth, whether it is the present-day value or what the benefit will be during retirement.