Husband’s 401(k) & a Indiana Divorce
Getting divorced in Indiana means you may gain some of your ex-husband’s retirement benefits. Indiana allows domestic relations orders that split up retirement accounts. This also applies to your husband’s 401k plan.
However, the order must meet specific guidelines before it qualifies under the Employee Retirement Income Security Act (ERISA) as a relations order that must be followed by a 401k plan administrator. These orders are initiated and issued by a court and are based on the circumstances of your divorce.
A qualified domestic relations order (QDRO) is a court order in a divorce proceeding that allows you to take possession of some of your ex-husband’s retirement savings.
Normally, 401k plans are protected from being split up because ERISA prevents such transfers from taking place. Retirement accounts cannot normally be assigned or alienated.
When a court issues a qualified domestic relations order, you are entitled to all the funds outlined in the order. The plan administrator for your husband’s 401k plan must transfer these funds to a new retirement account you own and control.
You may add to these funds as long as you obey the contribution rules for the new account. You may even add money to the account in the first year it is set up, because the transfer is treated as a rollover and not a contribution. This money is yours once the order is issued and the funds are deposited into your new retirement account.
Section 206(d)(1) of ERISA prevents retirement funds from being transferred out of your husband’s account. To circumvent this, a QDRO must be issued. You cannot demand your husband hand over any portion of his retirement account without this order.
Even when a court does issue an order, it must conform to section 206(d)(3)(B)(ii) of ERISA. It must relate to marital property, child support payments or alimony. If the order does not conform to ERISA guidelines, the plan administrator does not have to transfer the assets to your new account.
You should not rely on your husband’s 401k plan for your retirement. Even though Indiana treats marital property as community property, the funds you receive may not be sufficient for you to retire. Consider adding regular contributions to the plan and investing all the money you do receive so you meet your own financial goals for retirement.
You should also consider meeting with a financial planner to discuss realistic investment options for you as well as a savings rate in addition to the money you receive from your ex-husband’s 401k.