For many couples, a significant portion of their net assets are contained within an Individual Retirement Accounts (IRA). When one of the parties files for dissolution of the marriage, it is imperative to understand of how to divide your IRA accounts between you. This is not something should be entertained without the help of an attorney, most preferably one with experience in splitting retirement accounts. IRA’s usually do not require Qualified Domestic Relations Orders (QDRO’s), which are required for 401K retirement accounts. Most IRA’s require letters of instruction and a copy of the Final Judgment of Dissolution of Marriage. It is important that the attorney include clear language in the Final Judgment so it is clear to the plan administrator the amount they are transferring from which party to the which party. If you and your spouse have agreed that your IRA account will be divided between the two of you, a certified copy of your Final judgment and a letter from your attorney will likely be required. To avoid any tax implications of the transfer from the spouse owning the account to the other spouse it is very important to include clear language in the Final judgment. I even cite to the US code indicating the transfer is pursuant to equitable distribution and not taxable. However, even this language will not save you if you do not ask the right questions and have a vehicle to transfer the IRA funds into. The IRA funds must go into a qualified IRA plan to remain non-taxable. If the spouse receiving the IRA funds does not have an account it is wise for them to set up a shell account with the same entity for the smoothest transfer. The funds transferred from the IRA are viewed as the recipient-spouse’s property and, therefore, this conveyance (transfer) is acknowledged as tax-free. There are two basic transfer methods for divorcing couples.

The most common method is the “direct transfer.” The IRA owner-spouse may order the IRA trustee (IRA plan administrator) to transfer the necessary IRA assets directly to the trustee of a new or existing IRA in the name of the recipient-spouse.

Another alternative is to transfer the assets the owner-spouse is entitled to keep to another IRA, leave the necessary amount in the old IRA for the recipient-spouse, and change the name on this old IRA to that of the recipient. This is known as the “renaming method.” A final alternative under the renaming method would come in handy if all the assets in the owner-spouse’s IRA are to be transferred to the recipient-spouse; a simple method of transfer is to just change the name of the account on the records of the financial institution. Again, be sure the letter of instruction and the final judgment are as clear as possible.

The best method of transfer is something to discuss with your chosen attorney and/or financial planner. It also good advice to determine if other assets can be divided that do not require the complexity of IRA transfers and which would allow the recipient immediate access to use the funds as the IRA transferred funds may not be immediately available; and the rules regarding access to the IRA funds will be teh same as to all IRA holders.

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About Beth

Elizabeth Wolt is an AV rated marital and family law attorney. She runs a boutique law firm catering to a select group of clients taking on a low number of cases so she can devote individulaized attention during this difficult transition. Identified as one of the Best and Brightest college Students by USA Today in 1994. Featured in a cover article on May 8, 1997 of the Wall Street Journal. Graduated Magna Cum Laude from Undergraduate School- University of South Florida with a BA in Psychology 1994. Graduated Cum Laude from University of Miami School of Law- JD.1997. Named to the list of "Top Lawyers in Florida" by the Legal Network 2013, 2014, & 2015. AV rated by Martindale Hubbel in both ethics and ability. Rated "Excellent" by AVVO legal.com Featured in the American Lawyer December 2014
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