When Indiana spouses divorce, they can agree about how they want their property divided or the court will divide it for them. Either way, a spouse’s pension may be considered an asset divisible in the divorce according to Indiana law. When the pension is divisible, the court must issue the proper orders to effectively transfer part of one spouse’s pension rights to the other spouse.
Vested Vs. Non-Vested
Pensions are retirement plans that require an employee to work a certain number of years to receive benefits under the plan. For example, an employer may require all employees to work for 10 years before they qualify for any pension benefits. When an employee has not worked for the employer long enough to meet the minimum term of the pension plan, his rights are “unvested,” meaning he is in the process of earning them but doesn’t have them yet. An employee who has met the minimum term of the pension plan has “vested” pension rights since he is guaranteed to receive at least some benefits under the plan’s rules.
Indiana courts consider pension rights, vested or unvested, to be marital assets. Like other marital assets, they can be divided by the court in a divorce. Even though neither spouse actually controls the pension since it is in the control of the employer or union, the non-earning spouse is eligible to receive a percentage of the value of the pension that was earned during the marriage. Indiana courts may also divide the portion of the pension earned before marriage, but the earning spouse has the opportunity to convince the court that division of the premarital earnings would not be fair.
Indiana courts divide all property, including pension rights, in an equitable manner, which means the division should be just and reasonable — but not necessarily equal. Indiana law requires the courts to presume that an equal division would be just and reasonable, but the court can consider evidence that an equal split would not be appropriate in a particular case. Then, it can split the property in any shares it determines to be equitable. To make these decisions, Indiana courts consider factors such as the contributions each spouse made to the property, whether the property was acquired before the marriage, and the earning potential of each spouse.
Qualified Domestic Relations Order
Though the court can divide pension rights in the same manner as other property, the actual payout of these pension rights is different. Most pension plans require a Qualified Domestic Relations Order before the plan administrator will pay any benefits to anyone other than the earning spouse. QDROs must be issued by an appropriate court and must be approved by the plan administrator as meeting QDRO requirements before the administrator will pay any share of benefits to the non-earning spouse.