Yes. All of your property is considered marital property in the State of Indiana. This includes retirement accounts. Pensions, IRAs, and 401(k)s are considered property of the marriage and must be equitably distributed during an Indiana divorce. If the division is not performed correctly, it can lead to tax penalties.
In this article, the Danville, IN divorce lawyer, Chris Arrington, will discuss how retirement accounts are divided in a divorce.
Are Retirement Accounts Split in Half During an Indiana Divorce?
Generally speaking, the marital estate, including your retirement accounts, is split down the middle. However, that isn’t necessarily the case. Nor does it necessarily mean that your spouse will get half your pension, IRA, or 401(k). There are other means of dividing the marital estate equitably that would allow you to keep some or all of your retirement funds.
What are the Alternatives to Splitting My Retirement Accounts Down the Middle?
If one spouse is the sole breadwinner, it is generally useful to split the other spouse’s retirement accounts down the middle. However, if both spouses work and have their own retirement accounts, and these accounts are roughly of equal value, then the spouses may see fit to keep their own retirement accounts as opposed to splitting both accounts 50/50.
Another option is to offer an asset of equal value to the retirement account instead of the account itself. Real estate, for example, may be of comparable value. In that case, the other spouse would agree to accept another asset in lieu of half the retirement account.
How are Retirement Accounts Divided in Indiana?
In the State of Indiana, marital assets, including retirement accounts, are distributed through a process known as equitable distribution. While in most cases, this means a 50/50 split of the marital estate, an Indiana judge can favor one party over the other if it would be “unfair” to split the marital estate 50/50.
While equitably distributing the marital estate, a judge could consider factors such as:
- The duration of the marriage
- The financial situation of the spouses
- Each spouse’s contributions to the marriage
- Each spouse’s debts and financial obligations
How Do I Prevent Tax Penalties if I Have to Distribute My Retirement Account?
If you don’t handle the process of dividing the retirement account properly, you could have to deal with tax penalties. The best way to avoid early withdrawal penalties is with a Qualified Domestic Relations Order or a QDRO. A QDRO allows you to divide your retirement accounts without incurring tax penalties. QDROs can be used to divide pensions and 401(k)s. There are other legal methods for dividing an IRA.
To divide an IRA, the court will issue a “transfer incident to divorce.” This allows a tax-free transfer of the IRA’s assets between the spouses as part of their divorce settlement.
Talk to a Danville, IN, Divorce Lawyer Today
Chris Arrington represents the interests of Indiana residents during their divorce. Call our office today to schedule an appointment, and we can begin discussing your next steps right away.