Dividing investments in divorce can be complex. In addition to jointly held real estate assets, other common assets divorcing couples are concerned about include their portfolio of investments, IRAs, and pensions. Rules vary from state to state, but Indiana is an “equitable distribution” law state. While there is a presumption that assets be divided 50/50 in most cases, trial court judges do have some latitude in how to fairly divide investment assets. With that in mind, here is some essential information to help you understand certain factors in play:
Investments
In Indiana divorce cases, all “marital property” goes into the marital pot for division. This includes property owned by either spouse, regardless of whether it was acquired before or during the marriage. Further, because Indiana is an equitable distribution law state, all marital property in a divorce is to be divided in a “just and equal” manner. Although the presumption is that a just and equal division is a 50/50 split, achieving this can be complicated, especially when it comes to investment assets. What’s more, a spouse can petition the court to deviate from the presumptive 50/50 split if they believe this baseline standard for equal asset division is not, ultimately truly “just.” The spouse seeking this deviation bears the burden for arguing and proving its need.
Even property that is not jointly titled is presumed to be marital property subject to fair and equitable distribution during divorce. In fact, trial courts cannot, by Indiana law, exclude any asset in which a party has a “vested” interest. That becomes particularly important for investments, as well as pension or retirement accounts. In any event, when dividing investments in divorce, the court will not require a spouse to sell off an investment. However, if a spouse wishes to sell an investment (notwithstanding any special circumstances), this is generally permissible. Otherwise, the court will typically divide the shares equally between the spouses. Other rules and remedies may apply for IRAs and pensions.
IRAs and Pensions
“Can my spouse get my IRA in a divorce?” This is a common question of great concern to divorcing partners. Simply put, when a spouse has an Individual Retirement Account, (or IRA), divorce gets even more complicated. Here are some parameters:
Accounts (both IRAs and pensions in most cases) must be “vested.” An employer pension or retirement plan is considered vested if it meets three tests: 1) there is a present right to withdraw benefits; 2) there is a right to receive pension or retirement benefits that are not forfeited upon termination of employment but are payable after the divorce; and 3) there is a right to receive pay acquired during the marriage that is, or may be, payable after the dissolution of marriage. If either spouse has such a vested or partially vested IRA or pension plan that meets this standard, the plan is a marital asset subject to division. In this case, the court can put in place a Qualified Domestic Relations Order (QDRO) granting one spouse half of the other’s pension or retirement account. With a QDRO, a pension can be divided because the division complies with all state and federal laws.
Nonetheless, for the court, achieving fairness when dividing divorce and pension plans or other retirement plans can be cumbersome. It might, for example, affect plan eligibility or be financially detrimental to one or both spouses to force a division of pension or retirement assets. In such cases, the court might decree that one spouse will retain most or all of this vested pension or retirement benefits while the other spouse receives a larger share of other offsetting property or liquid assets.
It can get complicated, to say the least, with plan structure, asset values, and pre-marital/prenuptial agreements adding to the complexity.
Pension Plans – The Coverture Fraction
Regarding pensions, Indiana divorce law permits a trial court to use a “coverture fraction” to divide the asset. This type of valuation only values the amount of the pension acquired during the marriage and divides this portion equally. While this results in less than an equal division of pension assets, the court has this latitude in the interest of making a “just” division.
Key Takeaways:
Dividing investments in divorce, including IRAs and pension plans, can be complex. Here are some important considerations:
- Indiana is an “equitable distribution” law state with a presumption that assets be divided 50/50 in most divorce cases; however, trial court judges do have some latitude in how to fairly divide investment assets
- In Indiana divorce cases, all “marital property” goes into the marital pot for division, including property owned by either spouse, regardless of when it was acquired
- In most cases, IRAs and pensions must be “vested” according to three guidelines
- The court can put in place a Qualified Domestic Relations Order (QDRO) granting one spouse half of the other’s pension or retirement account
- Indiana divorce law permits a trial court to divide a pension using a “coverture fraction” which only values the amount of the pension acquired during the marriage and divides this portion equally
- Because dividing investments in divorce can be complicated, it is wise to engage the services of a qualified and experienced divorce attorney legal firm such as Dixon & Moseley, P.C.
At Dixon & Moseley, P.C., our attorneys leverage decades of collective experience handling divorce and pension plan entanglements, including dividing investments in divorce. To learn more, contact us today at (317) 972-8000.
We believe that being an educated legal consumer can help you make the most of the legal experience in meeting your legal objectives. This blog post, for example, provides general educational material regarding dividing investments in divorce. This information is presented by attorneys at Dixon & Moseley, P.C. who practice throughout the State of Indiana. It is not a solicitation, nor is it intended to provide specific legal advice. It is an advertisement. Information contained herein is subject to change.