How Does Indiana Divorce Law Divide a 401K?

By Heather Frances J.D.

When an Indiana couple divorces, the court must divide the couple’s property as part of the divorce decree, unless the spouses can mutually agree to a property split. Sometimes, the couple’s most important assets are their retirement plans, including 401(k)s, and are divided like any other property. How much each spouse receives from these accounts will depend on several factors.

Marital Property

Indiana courts have authority to divide all of a couple’s marital property as well as the separate, or non-marital, property each spouse acquired before or during their marriage, such as an inheritance or gift. Unlike most other states, Indiana considers all property a couple owns, including 401(k) retirement accounts, eligible for division in a divorce. For example, if a spouse owned his 401(k) prior to the marriage and made contributions to it both before and during the marriage, an Indiana court can divide all or part of the 401(k) between the spouses, but the amount awarded to each spouse depends on the circumstances of the marriage.

Equitable Division

Indiana is an equitable distribution state, which means its divorce courts divide marital property equitably but not necessarily equally. While courts presume an equal division of property is just and reasonable, courts can deviate from a 50/50 split when appropriate. Typically, judges consider the length of the marriage to be particularly relevant to property division, including division of a 401(k) account, so couples in a shorter marriage are less likely to receive a 50/50 split of all assets. For example, a spouse in a short-term marriage may be allowed to keep his entire 401(k); however, in a long-term marriage, the court is likely to require this same spouse to give a portion of his retirement account to the other spouse upon divorce.

Transferring a 401(k)

It is a bit more complicated to transfer a share in a 401(k) account than it is to transfer other types of property because special withdrawal rules apply to 401(k)s. Typically, a 401(k) is divided when the court issues a Qualified Domestic Relations Order. A QDRO assigns a share of a 401(k) or other asset to an alternate payee, such as an ex-spouse. Once established, the retirement plan administrator, not the spouse, pays the awarded share directly to the ex-spouse in accordance with the QDRO. This prevents tax fines and penalties that would ordinarily occur upon early withdrawal of the retirement account.

Offsetting Assets

It is possible for the value of a 401(k) to be divided without actually splitting the contents of the retirement account. The spouses may agree to keep the 401(k) intact and instead give the other spouse a greater share of other marital assets to offset that spouse's share of the 401(k). For example, if one spouse in entitled to half of the other spouse’s 401(k) account worth $100,000, she can agree to receive her $50,000 share of the account in cash or as a $50,000 increase in her share of the couple’s house or other property.