Pensions can be a real source of contention during a divorce. Conversely, they can be overlooked by the parties as many are set-up to earn money and let you forget about them as they do so. No matter how a pension is structured, it is always best to have it evaluated before writing it off as something you are willing to give up just to have the divorce be over. This blog discusses pensions and divorce in Indiana and what you should know.
Marital property is described as (I.C. 31-15-7-4(a)), all property owned by the parties, whether acquired before the marriage, during the marriage through the parties joint efforts, or during the marriage by either spouse in their own right. The same statute specifically provides for the distribution of benefits described in I.C. 31-9-2-98(b)(2) or I.C. 31-9-2-98(b)(3). These two sections further define property for the purposes of disposition of property in a divorce, stating, in relevant part, that property means “…(b) all the assets of either party or both parties, including …(2) the right to receive pension or retirement benefits that are not forfeited upon termination of employment or that are vested (as defined in Section 411 of the Internal Revenue Code) but that are payable after the dissolution of marriage; and (3) the right to receive disposable retired or retainer pay (as defined in 10 U.S.C. 1408(a)) acquired during the marriage that is or may be payable after the dissolution of marriage.” The court may distribute these pension or retirement benefits by setting aside a specific percentage of the payments to either party (I.C. 31-15-7-4(b)(4)).
The value of assets that will be set aside or awarded to a party is governed by the presumption for equal division of marital property statute (I.C. 31-15-7-5). This statute also provides for rebuttal of an equal division if a party presents relevant evidence that an equal division would not be just and reasonable. Some of the factors the court will consider when a party is attempting to rebut the presumption are: “(1) The contribution of each spouse to the acquisition of the property, regardless of whether the contribution was income producing. (2) The extent to which the property was acquired by each spouse: (A) before the marriage; or (B) through inheritance or gift. (3) The economic circumstances of each spouse at the time the disposition of the property is to become effective, including the desirability of awarding the family residence or the right to dwell in the family residence for such periods as the court considers just to the spouse having custody of any children. (4) The conduct of the parties during the marriage as related to the disposition or dissipation of their property. (5) The earnings or earning ability of the parties as related to: (A) a final division of property; and (B) a final determination of the property rights of the parties.” A spouse who earned the pension being divided by the court can argue that an equal division of the pension or including any portion of the pension earned before the marriage would not be just and reasonable under this statute.
Another consideration when divorcing and dividing pensions is whether the pension is vested or non-vested. A vested pension can be divided immediately (Internal Revenue Service). Generally the non-earning spouse simply sets up an account with the plan administrator, such as Fidelity or Empower, and their share of the pension is rolled over from the earner’s account to their own once the court’s order has been processed and the amount to be distributed calculated. Non-vested pensions are unavailable to the earner due to the employers rules regarding the length of time they must remain employed before the pension becomes vested (SmartAsset Advisers, LLC). Non-vested pensions are more difficult to divide and may need to be valuated in order to determine the value that is subject to division. The non-earning spouse’s share of the pension will then be distributed to them once the pension has vested.
Finally, parties need to consider the tax consequences of a pension division. Oftentimes the earning spouse ends up paying the taxes on both spouses pension payments, causing the non-earning spouse to receive more than the amount originally provided for in the dissolution decree (Maxwell v. Maxwell, 163 N.E.3d 337 (Ind. App. 2021)). It is therefore always best to consult with an attorney or other tax professional in order to determine what tax issues may be involved when dividing a pension.
This blog was written by attorneys at Ciyou & Associates, P.C. It is for general educational purposes. The blog is not intended to be relied upon for any legal matter or issue. The blog is not legal advice. This is an advertisement.