IRAs After Divorce

divorced wedding toppers

According to a University of Arizona study, more than 20% of first marriages end in divorce within five years, and 48% of marriages dissolve by the 20-year mark.

When navigating these divorce cases, financial matters are among the most frequent topic of disagreement. The messy task of dividing up financial assets makes the difficult decision of divorce even more trying.

Divorce often involves splitting significant financial assets. Retirement savings accounts can comprise some of a couple's most valuable assets. Whether you want to know about the legal process, mistakes to avoid when splitting retirement assets, or how to control your retirement assets after a divorce, this directory contains a comprehensive set of resources.

Key Definitions and Steps to Take

Laws on dividing property vary from state to state, but the general rules apply. There are important terms and steps to take to unravel the assets jointly held.

Identify the Property

A significant part of a divorce involves splitting assets between the divorcing spouses. Knowing what you own is an important starting point for a smooth property division in a divorce.

This step entails identifying all assets, including income, retirement benefits, royalties, real estate, investments, vehicles, etc. The resources below will help you identify, track down, and assign values to all your assets and ensure a smooth transition in a divorce.

Distinguishing Marital and Separate Property

It’s essential to distinguish marital and separate property during a divorce. Before the division of assets can occur, each spouse needs to identify which assets should be subject to division. The next step in determining the classification of assets as marital or nonmarital is to analyze how the property was acquired. These resources provide guidance on identifying which assets are marital and which are not.

Agreeing on Property Distribution

While couples can ask the court to decide on the division of properties, they can also work together through an agreement to determine which assets each spouse will take away.

This second method offers several benefits over a judge’s ruling. It takes less time. It reduces the financial and emotional costs of property division. And agreements can offer a cleaner separation for the couple.

Community Properties and Equitable Distribution

Forty-one states follow a process called equitable distribution. This process divides assets and liabilities based on fairness. The rest of the states, known as community property states, split marital assets equally. Learn about how state laws affect the division of properties in your divorce.

How Are Properties Divided at Divorce?

House with a question mark. Cost estimate. Solving housing problems, deciding buy or rent real estate. Search for options, choice type of residential buildings. Property price valuation evaluationAfter determining which assets are involved and how your state determines agreements and equitable distribution, you are left with the actual asset division. Here are a few resources to help you keep the process as smooth as possible, including the tax consequences.

  • Retirement Account is Community Property but Need Not be Split Equally – Learn about how state laws take effect on dividing community properties. This article provides a specific case that community property does not necessarily be split 50/50.
  • Property Division by State – Learn more about the differences between community property and equitable distribution states and how actual splits are decided.
  • Divorce and Property – This article includes resources to help those going through a divorce determine how property should be divided, what happens to shared debts, how to find hidden assets, what happens to the family home, the effect on insurance policies, and more.
  • How to Transfer Assets After a Divorce – This article from Betterment will answer frequent inquiries to help understand what happens next in terms of dividing assets in a divorce.
  • Divorce Settlement of Retirement Savings – Learn about negotiating retirement property settlements, employee plan concerns, and cautions.

Retirement Plans in a Divorce

Retirement savings are an essential issue in divorce proceedings. They are incredibly complicated as they may be subject to tax implications when not handled properly.

These resources offer valuable insights into properly managing your retirement savings during the division of assets in a divorce.

  • What is a Qualified Retirement Plan? – This article summarizes what you need to know about qualified retirement plans, along with an example.
  • Qualified Retirement Plan – Defines a qualified retirement plan with in-depth information on the defined benefits, contributions, and related taxes.
  • Qualified Domestic Relations Order (QDRO) – Learning about qualified domestic relations orders (QDROs) during a divorce is essential. This article provides a general definition of a QDRO, its scope, and its limitations.
  • What is a QDRO – This page answers frequently-asked QDRO questions. It also provides a list of necessary supplemental documentation to enforce a property claim.

Individual Retirement Arrangements

An individual retirement arrangement or account (IRA) is a type of tax-deferred or tax-advantaged retirement savings account. They are also among the most important properties to divide in a divorce. Here are some resources that offer definitions and proper handling of IRAs.

The Correct Way to Transfer an IRA in a Divorce

Splitting an IRA in a divorce is unlike dividing a home, business, or other qualified retirement assets. Proper handling of IRAs is critical to ensuring rules are followed to avoid financial loss and further complications in a property settlement.

These resources offer vital information on governing rules, considerations, cautions, and proper ways of handling IRAs in a divorce:

Transferring IRAs: What You Need to Know

Unlike defined benefit plans, you need a divorce decree to ensure an IRA divides without triggering a tax on the transfer. A divorce decree is the final ruling order that makes the termination of a marriage official and financial assets divisible.

Methods to divide IRAs

Withdrawal or Distribution

Individuals can choose to distribute a portion or all of an IRA and directly distribute it to both parties. Typically, distributions from an IRA or other qualified retirement plans before the age of 59½ are subject to a 10% penalty and income tax. Here are some resources you can read:

Rollover and Transfer

A typical rollover during a divorce occurs when one spouse withdraws money from their IRA account and gives it to the ex-spouse to redeposit into another IRA account. You can choose to have awarded amounts rolled over directly to your ex-spouse through an IRA account. On the other hand, a transfer is when funds or assets are sent directly between institutions. These resources will help you.

Transfer Ownership

If you are awarded 100% of your spouse's IRA, you may be able to change the name on the account to your name. Transferring ownership does not split an IRA. It instead grants all rights and control of an existing IRA to one party for a new account to take effect.

Tax-Free Division of IRAs for Divorcing Couples

Internal Revenue Code section 1041 provides that a transfer between former spouses, “incident to divorce,” is not taxable in most circumstances. This includes transferring interest in non-qualified plans such as an IRA under a divorce decree or separation instrument. There are two basic disposition options available to you and your former spouse:

  1. The transfer of all or a portion of the interest in a traditional IRA to a former spouse, under a divorce decree, or
  2. Separate maintenance or a written instrument incident to the order, which isn’t considered a taxable transfer.

Here are some resources on this vital subject:

To ensure that a splitting process does not trigger taxes, the transfer must be done by:

  • Changing the name on the IRA from your name to that of your former spouse (if transferring your entire interest in that IRA), or
  • A trustee-to-trustee transfer from your IRA to one established by your former spouse.

Changing the name on the IRA

Changing the name on the IRA or an ownership transfer is guaranteed to be tax-free under a divorce decree. A divorce decree can award 100% rights and control over an IRA. Here’s how that works:

Trustee-to-Trustee Transfer

Directly transferring funds from one account to another is also a tax-free way to split assets during a divorce, as long as there’s a divorce decree. Here are some resources on this process:

  • IRA Trustee to Trustee Transfers – This article answers how moving your IRA funds from one IRA to another should have no tax implications.
  • Transfers vs. Rollovers: What's the Difference? – Transfers and rollovers are methods of moving IRA assets. This article will guide you through the best methods to avoid triggering taxes and how to start the process.
  • How Direct IRA Transfers Work – A direct rollover or trustee-to-trustee transfer is one of the simplest ways to transfer IRA assets without triggering taxes. This article summarizes what you need to know about a direct transfer.

Transfer Incident to a Divorce

No gain or loss is recognized when a property is transferred between spouses during the marriage. This rule also applies to transfers between former spouses if there is an "incident to a divorce." A transfer is considered the incident to a divorce if it occurs within one year after a marriage ends or is related to the ending of a marriage

Best Practices in Transferring IRA in a Divorce

No matter how assets are split and reordered during and following a divorce, there are some best practices you should always try and observe.

Disputes and Common Mistakes Around IRAs in a Divorce

Mistakes involving IRAs can increase the financial and emotional toll of divorce on both sides. These mistakes can end up hurting your position in the case, as well as impacting your retirement plans and financial security.

Below are valuable resources on disputes and common IRA transfer mistakes in a divorce.

IRA One-Rollover-Per-Year Rule

According to the IRS, you are only allowed one IRA rollover in any 12-month period. Divorcing couples planning to initiate a rollover might also fall into this trap.

Premature IRA Splits

Since certain rollovers, transfers, and retitled accounts require a divorce decree explicitly laying them out, prematurely splitting up IRAs can be disastrous. Here are a few resources on that subject:

Protect your Assets with a Prenuptial Agreement

pre-nup singingPrenuptial agreements are safeguards that allow spouses undergoing divorce to choose how they want to deal with finances and marital disputes ahead of time instead of relying on state laws and courts to define property settlement. Prenups can help you avoid possible property division and divorce complications.

This directory will help you learn when and why a prenup is advisable and how to prepare one.

How to Build an Iron-Clad Prenup

Having a plan for assigning assets and liabilities is often a wise action while things are at their best. A prenup must meet standards of fairness and honesty to be valid and enforceable.

Although a prenup is a binding contract, it can be invalidated. Here are some resources to help you craft an iron-clad prenup.


You have a long list of issues when you go into court for a divorce trial. If you've got a business to value, children involved, accusations of infidelity and abuse, something like a retirement account can fall by the wayside.

If this subject is not spelled out, it may be left out in a divorce proceeding, and you could suffer financially. Educating yourself is the first step in ensuring a successful divorce and retirement. Be sure to take the necessary legal steps to protect your rights and hire qualified people to ensure your best interests are protected.

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