Is Indiana a Community Property State?
This is a commonly asked question by people facing a divorce in Indiana. Divorces in Indiana can be broken down into two categories:
- Divorce with children; and
- Divorce without children.
In fact, Indiana cause numbers (the numbers given to each suit filed in court) distinguish between a divorce with children and a divorce without children (DN vs. DC). This is because in a divorce case with children, the Court has many more issues to address, including: custody, visitation (called parenting time in Indiana), and child support. We will address each of these issues in subsequent articles.
However, when a divorce does not include children, the primary issue in a contested divorce is the marital assets/property. Of course, in a divorce with children, there can also be contested issues regarding the division of marital assets/property. This brings us back to the question that got you here: Is Indiana a Community Property State? The answer is no. Indiana is an equitable distribution state. But let’s look at what that really means.
Community Property vs. Equitable Distribution
In a community property state, all assets and debts of a marriage are divided equally, or 50/50. Now there are some exceptions to the general rule that differ in different community property states, but overall it is a marital property regime under which most property and debts are split evenly.
The majority of states in the country, including Indiana, follow an equitable distribution regime in dividing marital assets. Now the word “equitable” in equitable distribution sounds like it means “equal”, but “equitable” actually means “fair.” And just because something is split equally does not necessarily mean that it is being split fairly. For example, if you have $1,000 and split it equally among two groups, that may not necessarily be a fair split. Especially if you learn that first group has 10 people in it and the second group has 50 people in it. The same thing can happen with marriage as an equal split of all marital assets might not be necessarily fair for various reasons.
Indiana’s Equitable Distribution Statute – Indiana Divorce Law Regarding Marital Property
Each state’s interpretation of what constitutes an equitable distribution may differ. However, in Indiana, the starting point for any discussion regarding an Equitable distribution of marital property should begin with the Indiana’s equitable distribution statutes.
Indiana Code 31-15-7-5 states:
The court shall presume that an equal division of the marital property between the parties is just and reasonable. However, this presumption may be rebutted by a party who presents relevant evidence, including evidence concerning the following factors, that an equal division would not be just and reasonable:
(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.
This statute explains that the Court will presume that an equal split of the marital property is just and reasonable (aka equitable). So then what’s the difference between Community Property and equitable division you may ask? Good question. The statute goes on to explain that this equal is equitable idea is a rebuttable presumption. In other words, an equal split is the starting point for the Court and its up to the parties to provide evidence and argument to the Court to explain why an equal division is not fair (equitable) and why certain property should be excluded from the marital pot.
The Court even lists five factors (not an exhaustive list) a party can use to rebut the equal is equitable presumption. For example, a party can provide evidence that they owned a particular piece of property for 20 years before a marriage of 5 years and so splitting it equally is not fair (equitable). Or a party can argue that it received an inheritance that they kept separate from the marriage. But just because a party provides the Court with this evidence is not the end of the story. The other party can try to fight to bring the property back into the mix, arguing and providing evidence to the Court that they have used marital funds to fix up the property, or pay its property taxes. And so it goes, like a ping pong match, with both sides arguing and providing evidence to the Court as to how it believes the Court should split the marital property equitably. Ultimately though, it is up to the Court in deciding what is fair (equitable) and the Court does NOT have to exclude any assets or debts from the marital pot even if provided with evidence.
What is considered Marital Property in Indiana?
Indiana Code 31-15-7-4 states:
(a) In an action for dissolution of marriage under IC 31-15-2-2, the court shall divide the property of the parties, whether:
(1) owned by either spouse before the marriage;
(2) acquired by either spouse in his or her own right:
(A) after the marriage; and
(B) before final separation of the parties; or
(3) acquired by their joint efforts.
(b) The court shall divide the property in a just and reasonable manner by:
(1) division of the property in kind;
(2) setting the property or parts of the property over to one (1) of the spouses and requiring either spouse to pay an amount, either in gross or in installments, that is just and proper;
(3) ordering the sale of the property under such conditions as the court prescribes and dividing the proceeds of the sale; or
(4) ordering the distribution of benefits described in IC 31-9-2-98(b)(2) or IC 31-9-2-98(b)(3) that are payable after the dissolution of marriage, by setting aside to either of the parties a percentage of those payments either by assignment or in kind at the time of receipt.
This statute explains that ALL property belonging to the parties is considered marital property and is in the pot to be split between the parties. It does not matter if it was owned prior to the marriage or acquired by inheritance, it is still in the pot to be split up. Again, this presumption that all the marital property should be split equally can be rebut with evidence and argument, but it is the starting point.
Coverture Fraction Formula
One method of removing assets or a portion of assets from the marital pot is known as coverture. For example, say one party has had a retirement account before for quite some time before marriage. For instance, if a wife had a retirement account for 15 years before being married, and is married for 5 years before a divorce, under the Indiana statute, the whole retirement account is in the marital pot until wife argues or provides evidence otherwise. However, the wife can argue that the retirement account should not be split equally or at all. Indiana does recognize the coverture fracture formula.
Under coverture, the wife could argue that the Court should total up the retirement account, lets say $100,000, then split it based on a fraction formula. Under a coverture fraction formula, the Court could determine that since wife had the retirement account for 15 years prior to a 5 year marriage, 75% of the retirement should be removed from the marital pot. Then the parties would split the remaining 25% or $25,000 equally. So in this example, if the Court applied the coverture formula, wife would get $87,500 and husband would get $12,500. The Court may decide this split is equitable even though its not equal, since wife owned and contributed to the retirement account for 15 years prior to her marriage.
However, even if wife provided evidence that she did indeed own and contribute to the retirement account for 15 years prior to a five-year marriage, the Court does not have to exclude 75% of the retirement account. It is up to the Court to fashion a equitable division as it sees fit. The Court may decide the because wife in this case has higher earning capability than husband, giving husband 50% of the retirement account is equitable (fair).
What is NOT in the Marital Pot?
Other than property or assets that the parties successfully argue should not be considered marital property, property acquired after a final separation is not marital property. So if a party buys a winning lottery ticket the day after they filed for divorce, those funds would not be in the marital pot to be split. BUT, the court could still consider that one party does have a lot more assets now when fashioning a split of all the property that do remain in the marital pot.
Also, lets say a party gets a bonus a month after the parties have filed for divorce, the other spouse could argue that the bonus was accrued during the time the parties were married and so the bonus should be considered marital property. The Indiana Court of Appeals has decided a case like this where the bonus is received after the final separation but is deemed to be part of the marital pot.
Prenuptial Agreements and Settlement Agreements In Indiana
The rules regarding the equitable division of property only apply when the parties to a divorce go to a final hearing to have the Court divide the marital assets – usually because they are unable to agree themselves. However, the parties are free to decide themselves how to divide their own property and debts and this is likely the more common way to divide marital assets.
If an agreement was reached regarding the split of property before the parties were married, then it is called an ante-nuptial or prenuptial agreement. The Courts will generally honor prenuptial agreements, holding them enforceable as contracts, absent evidence of duress, fraud or other particular defenses. If you have questions on whether or not your prenuptial agreement is valid, speak to an Indiana divorce attorney for advice as each contract is different.
Likewise, the parties can agree after filing for divorce on how to split their own property without having the Court decide at a final hearing. These agreements are generally called settlement agreements. These agreements must be submitted to the Court for approval and are generally a matter of public record. These agreements are sometimes not equitable in the same manner that a Court would be required to fashion in a split. However, the Court usually approves the parties’ settlement agreements but is not bound to accept every settlement agreement. However, the Court of Appeals has held that the Court should use the power to disapprove settlement agreement sparingly.
Does Conduct Of Parties During Marriage Affect Distribution of Marital Property?
Indiana is considered a no-fault state for divorce. This means that the parties can just allege that there has been an irretrievable breakdown in the marriage rather than alleging a reason for the divorce. However, Indiana does maintain three “fault” bases for a divorce:
- Your spouse was convicted of a felony (subsequent to the date of your marriage);
- Your spouse was impotent at the time of your marriage; or
- Your spouse has been deemed incurably insane for at least two (2) years
As you can see, infidelity is not one of the remaining fault basis for divorce and infidelity has no effect on equitable division of assets by the Court in a subsequent divorce. In fact, none of the remaining fault bases for a divorce has any effect on the division of property. The Indiana Court of Appeals has stated that a party’s conduct or fault in the breakup of the marriage is not a proper ground for an unequal division of the marital property. However, as seen is the statute above, a party’s conduct during the marriage “as related to the disposition or dissipation of their property” is grounds for an unequal division of marital property. This means that if one spouse begins selling or hiding assets, or gambled money away prior to the divorce, the other spouse can use that conduct to ask the court to award them more assets to make up for the hidden or disposed of assets.
How is Debt Divided in an Indiana Divorce?
The same as marital assets. Under equitable distribution in Indiana, the Court will presume splitting the debt equally will be equitable (fair) unless a party can give a good reason why it should be divided otherwise. In practice, what often happens is wife will take her credit card debt, husband will take his credit card debt, and if one party takes on more debt, they will also may get a higher percentage of the assets to offset that debt.
Schedule a Free Consultation with an Indianapolis Divorce Attorney Today
While this article gives a brief overview of equitable distribution in Indiana, the body of law surrounding the division of marital property in Indiana is extensive. Anyways, the division of marital property is a very case-specific inquiry. If you have more questions, we would be happy to discuss it with you in a free initial consultation.
Avnet law understands the issues, the law, and can advise you regarding the division of marital assets in Indiana. Avnet Law represents clients in divorce actions in Indianapolis, Noblesville, Fishers, Carmel, Westfield and central Indiana.
Call 1-877-77-AVNET to Schedule a Free Consultation with an Indianapolis Divorce Attorney today.