Header Section

Splitting Retirement Assets in a Divorce-Part 3

Most attorneys and judges treat retirement assets the same as they treat any other asset. They are not familiar with all of the unique aspects of these assets. You need to know the following information to protect yourself if you find yourself in the midst of a divorce.

You have an IRA you inherited from someone. You are taking required distributions each year as a beneficiary. Now you are getting divorced and your soon-to-be ex-spouse is demanding that they get half of your inherited IRA. Can they do that? Of course they can. They just won't get an inherited IRA.

An inherited IRA is an item of IRD - income in respect of a decedent. This is money that was never taxed that was owed to someone who died. The beneficiary who inherits this income will have to pay the income tax owed. You can inherit IRD, but you cannot transfer it, gift it, or assign it. If you do, you will owe the income tax on it.

To get back to our inherited IRA and the ex-spouse, let’s say the ex-spouse was successful and was awarded one-half of the IRA in the divorce decree. What happens now? You have to request a distribution of one-half of the IRA, you have to pay the income tax on the distribution, and you give the funds to the ex-spouse. The ex-spouse now has cash - but no retirement plan. You have a tax bill, perhaps at a higher tax bracket, and you have lost one-half of your inherited IRA.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2009 Ed Slott and Company, LLC


Post a Comment