After a couple divorces, how are their retirement accounts split? In a recent case, the Indiana Court of Appeals clarified how gains and losses on a retirement account are handled when a property settlement agreement says the account will be divided. The court’s decision reinforces the idea that if an agreement says a retirement account will be split “equally” as of a certain date, then both parties also share in any gains or losses in the account’s value after that date.
The Case: Luke v. Luke
This case involved Travis James Luke (“Husband”) and Cheryl L. Luke (“Wife”), who were divorcing after nearly 27 years of marriage. As part of their divorce settlement, they agreed Wife would receive half of Husband’s 401(k) plan. The agreement stated the division would be “as of the date of the filing of the dissolution of marriage action, on October 4, 2022.” The trial court later issued a Qualified Domestic Relations Order (QDRO), a special court order used to divide retirement plans during a divorce. The QDRO said Wife would share in any gains or losses on her half of the 401(k) from the date of the divorce filing until the account was actually divided.
Husband challenged this part of the QDRO, arguing that the settlement agreement was unclear about whether Wife was entitled to any gains or losses. He wanted the court to look at a Marital Property Balance Sheet, which they had both signed before the final agreement, that showed the 401(k) had a specific value on the date of filing. He argued this showed the intent was for her to receive a fixed amount, not be subject to any market fluctuations. The trial court rejected his argument and reaffirmed the QDRO. Husband then appealed.
The Court’s Reasoning: Following Precedent
The Court of Appeals reviewed the case, focusing on the language in the couple’s property settlement agreement. It referred to a previous case, *Niccum v. Niccum*, which set a precedent for how such agreements are interpreted.
In *Niccum*, a couple’s agreement said a retirement plan would be “divided equally” as of a certain date. The court in *Niccum* decided that, unless the agreement specifically stated otherwise, the parties also shared in any gains or losses after that date. The court reasoned that equal division meant sharing both the rewards and the risks of the investment.
The Court of Appeals in *Luke v. Luke* found that the language in the Lukes’ agreement was similar to the language in *Niccum*. The agreement stated that Wife would be “awarded one-half” of Husband’s 401(k) as of the date of the divorce filing. The court said this meant they both had equal rights to any gains or losses after that date.
The court also pointed out that the agreement didn’t use a fixed dollar amount for the 401(k). Instead, it used a percentage, which meant the value could change. Because the language was clear and unambiguous, the court said it could only look at the settlement agreement itself, not any other documents like the Marital Property Balance Sheet.
The Court’s Decision: Sharing the Risk
The Court of Appeals sided with the trial court, affirming the QDRO. The court reiterated that when a property settlement agreement says a retirement plan will be divided equally as of a specific date, that means both parties share in any gains or losses after that date. To avoid this, the court said, the parties must explicitly state they don’t want to share gains or losses, or they should use a fixed dollar amount. This wasn’t done in the Luke’s agreement, so Wife will share in any gains or losses on her half of the 401(k).
What This Means for Divorcing Couples
This case serves as a reminder for couples going through a divorce in Indiana. When dividing retirement accounts, the wording of the property settlement agreement is crucial. If a couple wants to avoid sharing in the gains and losses of a retirement account, they need to be very specific in their agreement. They could, for instance, state that one party will receive a set dollar amount. Otherwise, the default rule is that both parties share in the ups and downs of the market after the specified division date.