Indiana is an equitable distribution state when it comes to dividing marital property. That means that the marital estate is divided in a way that is fair to both parties, but not necessarily even. Among the many assets that must be divided in a divorce are pensions, IRAs, and 401(k)s. Retirement assets represent a significant portion of many couples’ net worth. If the division is not performed correctly, it can lead to serious tax consequences and penalties. In this article, the Danville, IN, divorce lawyer, Chris Arrington, will discuss what happens to retirement assets during a divorce.
Retirement savings are considered marital property
Indiana courts consider the majority of retirement savings that were accumulated during the marriage to be marital property or part of the marital estate. It’s the marital estate that gets divided in a divorce. This includes 401(k) accounts, pensions, IRAs, and some government retirement programs. Even if only one spouse contributed to the retirement accounts, the accounts are still subject to division. Contributions that were made before the marriage are usually considered the individual spouse’s separate property and may not be divided, depending on the circumstances.
Courts will consider several factors when dividing retirement accounts. Such factors include the length of the marriage, each spouse’s financial situation, and each spouse’s contributions to the marriage. The courts hope to achieve a fair outcome that accounts for each party’s needs.
How do you divide retirement accounts in Indiana?
Dividing various retirement accounts requires a considerable amount of careful planning to avoid early withdrawal and tax penalties associated with raiding the accounts before they mature. For example, many retirement accounts can be divided using a Qualified Domestic Relations Order (QDRO), which is often used to divide 401(k)s or pension plans without triggering early withdrawal penalties. IRAs, on the other hand, do not require a QDRO, but still need to follow specific procedures to avoid penalties and transfer funds.
The process of dividing retirement accounts may involve offsetting certain assets that are part of the marital estate. For example, one spouse may be able to keep the house while the other spouse receives an asset of similar value. This approach simplifies the division process.
In some cases, a different approach can be in the best interests of both spouses. For example, if both spouses have retirement accounts of roughly equal value, each spouse may want to keep their own as opposed to splitting both accounts down the middle.
Talk to a Danville, Indiana Divorce Lawyer Today
Chris Arrington represents the interests of divorcing couples in Indiana. He can help with all aspects of your divorce, including equitable distribution of the marital estate, alimony, child custody, and child support. If you have any questions concerning retirement accounts or other concerns, do not hesitate to reach out. We can help.