IRAs are marital assets with special divorce rules

On behalf of Stange Law Firm, PC posted in High Asset Divorce on Thursday, June 7, 2018.

At the end of a marriage, an individual may find the need to divide the shared property. What and how the marital assets will be divided are decided during the divorce process. Some assets, like IRAs, have special tax rules that apply. Individuals in Saint Charles, Missouri, who want to separate an IRA during divorce should heed the rules to avoid a tax penalty.

The transfer of an individual’s interest in an IRA to a former spouse under a divorce or separation instrument isn’t taxable, per the IRS. While some plans, known as qualified plans, require a Qualified Domestic Relations Order to transfer the funds, an IRA does not require a QDRO. Funds can be transferred by the divorce decree by transferring the sum into a former spouse’s IRA account or retitling the account to the former spouse.

To qualify for the tax-free exchange, a legal divorce decree or separation agreement must exist. Informal arrangements do not qualify. Distributions taken from the IRA and awarded as cash do not qualify either, and they will be treated as a taxable event. Any distributions taken that do not qualify as a special exception will also be considered for an early distribution penalty.

The division of marital assets, especially for those undergoing a high asset divorce, can become complicated. Individuals in Saint Charles, Missouri, considering a divorce may wish for some extra help to avoid tax penalties. An experienced and knowledgeable family law attorney may be able to offer useful guidance to inquisitive people.

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