When a divorce is finalized, the court will issue a decree that gives instructions as to how and what will be done to complete the process. When a couple has assets that must be split, the family law court will typically state how the assets will be shared and where they will come from. For individuals in Texas who must split an IRA, they should pay close attention to the specifics of transferring funds to an ex-spouse, or they could face unintended tax consequences.
There are only two ways to split an IRA as part of a divorce, which will prevent a taxable event. The person can retitle the IRA in the ex-spouse’s name, or the person can do a trustee-to-trustee transfer directly into an IRA already held by the ex-spouse. If the ex-spouse does not already have an IRA account, he or she must create one that can accept the funds from the other ex-spouse’s account.
If a person ignores this process, which is typically spelled out in the divorce decree, he or she faces the tax repercussions of that choice. An individual may not withdraw funds from the account, put them into their checking account and then give them to the ex-spouse without paying the taxes. Unfortunately, this can also make the funds ineligible for the ex-spouse to place into a new IRA account, and both parties lose out.
In Texas, a person may not always immediately understand how to implement the decree given by the family law court. Getting outside help can be useful. An experienced divorce attorney will be familiar with the applicable laws and can offer advice to those who are interested.
Source: financial-planning.com, “How to split IRA retirement savings after divorce”, Ed Slott, May 15, 2018
-
Facebook
-
Twitter
-
LinkedIn
Subscribe To This Blog’s Feed