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A Primer: Division of Martial Assets in Indiana Divorce Cases

Divorce involving significant assets or contested child custody matters is in every sense a complex financial and emotional transaction. The reality of it is that the divorce court is dividing up money and kids, which the parties never envisioned would be divided and apportioned. This noted, complex financial assets or deferred tax accounts, such as a family-owned business or retirement investments accounts, provide unique challenges for the litigants (divorcing parties), attorneys, and the judge. The place to start your education on how Indiana judges divide the martial estate is understanding what “property” is and how it is presumptively divided by a judge. This blog covers the basics of property division in Indiana that you need to under to work through your divorce case with your divorce attorney.

With property to be divided upon divorce, it is important to understand that “property” encompasses. In Indiana, the term “property” under the Divorce Act essentially means assets and liabilities, from revolving debt (credit cards) to a home mortgage to a car loan. “Property” includes “stuff” and real property. “Stuff” would be anything from a car and car seat to a lawn mower. “Stuff” also includes investment accounts. Property is real property and improved real property. Real property is just land, such as farmland. Improved real property is property that has had something built upon it, such as a home (or your home) in a housing edition.

Indiana is a “one-pot” theory state which means all assets and liabilities go into the marital “pot” to be divided. What if I brought my own “property” into the marriage? In Indiana, the marital pot is comprised of the property of the parties to the divorce, whether (1) owned by either spouse before the marriage; (2) acquired by either spouse in his or her own right after the marriage and before the final separation. The final separation is the date on which the divorce petition is filed by a party. Additionally, this marital pot contains all property acquired by the parties joint efforts. Further, Indiana is not a title theory state; this means it does not matter whose name the asset is in—it’s all dumped into the marital pot for division.

With all of the assets (and liabilities) in the marital pot, the Divorce Act directs the court to presume an equal division of assets is just and reasonable. A simple example is suppose the parties only asset and liability is a single bank account with $100,000.00 at the time of filing and the parties have one financial obligation of $50,000.00 at the same time; with the presumption of an equal division found to be just and reasonable as a division of the martial estate by the court, the parties would be ordered to divide this debt equally, resulting a net division of the marital estate being a $25,000.00 award to party.

However, this presumption may be rebutted by either party if he/she presents relevant evidence that an equal division would not be just and reasonable. It takes a seasoned family law attorney to develop and present this evidence to the divorce court in a final hearing. This is where you need a seasoned divorce advocate to argue about and for an unequal division. The divorce court can order an unequal division for any equitable reason. However, there are statutory dictates that trial court judges are to consider for making an unequal division. Is this your case?

The first consideration that you could argue for an unequal division of the marital estate is the contribution of each spouse to the acquisition of the property in the marital estate now placed in the martial pot for a presumptive equal division. For instance, if one spouse elected not to work and the other spouse, through his or her own efforts, amassed a significant portfolio of investments, the court could consider this fact an make it an unequal division. Your attorney had to help you present compelling evidence that an unequal division is just and reasonable. With an unequal division, the immediate appellate court, the Indiana Court of Appeals carefully determines if the trial court judge abused his or her discretion with a deviation from the statute. For this reason, it is very “safe” for a trial court judge to make an equal division as he/she is in a “safe harbor” and unlikely to be reversed on appeal.

The court also can consider the extent to which certain property in the martial estate was acquired by one spouse before the marriage or through inheritance of gift. Inheritance includes vested rights prior to the date of filing. A hypothetical case where a trial court could deviate from the equal presumption would be the following:  The evidence shows the parties lived a modest lifestyle, but one party inherited a large sum of money the testator saved with the specific intent of passing it on the one of the divorcing parties. The argument to be made is the testator lived a humble life and save all extra money to pass on to her daughter, the wife in the divorce case. The evidence likely could be developed that to give the husband such a windfall would be unfair to the wife who received the inheritance. On the other hand, the counter argument is why not allow both parties to share and enhance their post-divorce lifestyle. This is up to the discretion of the judge to decide, but the judge is more likely to be reversed on appeal for an unequal division versus and equal division.

Thirdly, the court can consider the economic circumstances of each spouse at the time the disposition of property is to become effective, including the desirability of awarding the family residence or right to dwell in the family home for such periods at the court considers just to the spouse having the custody of any children. This statutory consideration is clearly aimed at making sure the children have some semblance of stability at the time of divorce by staying in the home they have grown up in. The evidence for this type of argument for deviation could be emotional to some degree, such as showing that the big tree in the front yard of the martial residence is where the kids all climbed in younger days and the long-time family dog, Buddy, had his ashes spread if that type of evidence demonstrates this is the place the kids identify with and call home during their parents’ tumultuous divorce.  This evidence of how even the property division of the marriage may be inextricable woven into what is in the children’s best interests.

The conduct of the parties during the marriage as related to any disposition or dissipation of the property of the marital estate subject to the one-pot theory and presumptive equal division of the martial estate is the next statutory consideration. This statutory basis for deviation addresses the situation where a party has drawn down the value of the marital estate. Typically, this is for purchase of drugs or gambling. For example, if the net (after liabilities) value of the martial estate is $100,00.00 and it should be $200,000.00 but for gambling losses or drug purchases, the court could find it just and reasonable, the court could award the entire marital estate to the aggrieved spouse. That said, while every skilled divorce attorney has probably had a case like this, it is time-consuming and otherwise expensive to develop this evidence.

The fifth and final statutory consideration is the earning ability of the spouses at the time of the divorce. This is effectively Indiana’s “alimony” provision in the law. While the Divorce Act does not recognize “alimony”, the court could find an unequal division of the marital estate is just and reasonable for a parent who gave up their career and stayed home and raised the children. If there is a vast disparity in earning power for the stay-at-home spouse (substantially less earning power) if he/she must enter into the job market, the court could order an unequal division to “square” this up. This is a complex argument that likely takes a vocational expert to assist with evidence to rebut the presumption. Again, the key to this legal position is to have skilled counsel to develop the evidence for the final hearing.

When the division is determined by the court in a divorce proceeding, equal or unequal, the judge still must determine how to divide the property to effectuate its division. Seem simple? Not so. Some property is not worth the cost of developing the evidence to divide (i.e. pots and pans), cannot be divided as is, or has tax implications. For this reason, the property division of the divorce act presumes the court will make its ordered division through one of four ways. The first is division of the property in-kind. This is where a judge might order the parties to divide the kitchen item such as plates and silverware equally, although with a place setting for six, it would be odd for each party to receive three bowl, plates and forks and spoons. If this is hotly contested, the parties must present detailed evidence at to the proposed division that is just and reasonable. However, this could result in a long, expensive trial. Is it worth it?

The second method the court is to divide property is by an equalization payment: “ . . .setting the property  . . .over to one (1) of the spouses and requiring either spouse to pay an amount, either in gross or installments, that is just an proper. . . .” An example is often presented with the martial residence. If there is substantial equity, it maybe awarded to one spouse and require that spouse to pay the other spouse (the one that did not receive the home) an equalization payment. Typically, this is accomplished by a refinance of the martial residence. What if the spouse awarded the martial residence does not qualify for a mortgage due to debt-to-income? What if that spouse does not do so and files bankruptcy? There are many complex legal consideration in property division of material martial estate. Choose your divorce counsel carefully. You future “sanity” and financial stability may depend on it.

The third way the divorce court can effectuate its division of the marital estate is to order the sale of property and for the parties to divide the proceeds. Fourthly, the court is to consider the tax consequences of any potential division. For instance, if there are two accounts. A cash account valued at $100,000.00 on the date of filing and one retirement account with the same value, $100,000.00 which one would you pick?  The $100,000.00 cash account has already been taxed. The $100,000.00 retirement account has not been taxed and is subject to penalty and tax if “cashed out”. Clearly, in this example, a party would want the $100,000.00 post tax account. This is not just and reasonable. With clear evidence and an equal division, each party would receive $50,000.00 in cash and $50,000.00 of retirement account funds. Presupposing the retirement account was in only one spouse’s name, this transfer to the other spouse would be by a Qualified Domestic Relations Order (“QDRO”). This allows transfer of pre-tax investments like this without triggering a tax consequence.

Ultimately, any martial estate, even those without complex assets, like the family owned business referenced at the beginning of this blog post or stock option, present the need for a careful development of the evidence and presentation of same in the courtroom. We hope this blog helps you understand the basics of a property division in most divorce cases in Indiana. This is a complex evidentiary presentation and takes a skilled advocate who is not afraid to prepare for and litigate this case in the Indiana courtroom. Ciyou & Associates, P.C. attorneys are seasoned litigators. Should we partner with you in your divorce case? This blog is written by the Firm’s attorneys. This information educates you about a property division in any Indiana divorce. This blog is for educational use; it is not legal advice or a solicitation for services.

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