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How to divide retirement savings in an Indiana divorce

On Behalf of | Jun 18, 2024 | Family Law

Dividing retirement accounts and pensions can be a critical step in Indiana divorces. These are the results of years of planning and labor, not just money. Indiana law regulates the division of these assets to guarantee a fair split.

Identifying marital versus separate assets

Differentiating between individual and marital assets is first. Everything gained during marriage, including deposits to retirement accounts, gets included in marital assets. Separate assets, however, are those inherited or gifted prior to the marriage. Only the marital assets end up divided in a divorce in Indiana.

Division methods for retirement savings

Retirement savings are typically divided using one of two methods: 

  • The “Qualified Domestic Relations Order” (QDRO): A QDRO allows for the division of qualified plans, like 401(k)s and pensions, by creating a separate account for the receiving spouse. The method ensures that the funds get split without penalty and taxed appropriately when they get withdrawn.
  • The “transfer incident to divorce”: The transfer incident to divorce method works for IRAs. The process involves direct transfer of the IRA’s assets to the other spouse. It helps avoid tax penalties that would otherwise occur with early withdrawal.

Considerations for a fair distribution

How retirement assets get divided depends on a number of things. The duration of the marriage and the financial situation of both partners matter. For an equal distribution, the court also takes future income potential into account too. 

Reflecting on the future

Dividing retirement assets is more than a legal process; it’s a step towards new beginnings. It ensures that both parties have a foundation for their future financial security. Understanding these principles can help individuals approach this complex aspect of divorce with confidence and clarity.