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Cardan Founding Partner and Certified Divorce Financial Analyst® (“CDFA”)  Sarah Keys, explores splitting IRA accounts during a divorce.

Outside of the home, retirement accounts are often the biggest asset for many couples.  For this reason, they should not be overlooked during a divorce simply because they are in an individual name.  Indeed, anything accumulated during the marriage is presumptively marital property and subject to equitable division in Colorado unless agreed to otherwise, approved by the court and subject to some exceptions, most of which are unlikely to apply to a retirement account.  C.R.S. §14-10-113(3).

Although IRA distributions are oftentimes subject to a penalty if under the age of 59 ½ and taxed as ordinary income, under IRC §408(d)(6), there is no penalty or tax for a change in ownership of an IRA incident to divorce.  There are three ways to transfer ownership of IRA assets:

  1.  change the account owner’s name—this is not always allowed or advisable for reasons we won’t go into here, so check with your custodian and financial advisor before pursuing this option;
  2. trustee-to-trustee transfer—this involves moving the assets from one person’s IRA to another IRA account in the recipient spouse’s name within the same financial institution; and
  3. tax-free rollover—take an IRA distribution and give it to the recipient spouse.  If option #3 is selected, the recipient spouse must make sure to deposit the funds into an IRA in his/her name within 60 days to avoid taxes and a penalty.

Importantly, this exception also applies to Health Savings Accounts and 401k plans.  In all three cases, you will want to work closely with your financial advisor and attorney to comply with the rules and to ensure that the transfer of ownership is accepted by the administrator or custodian and does not result in unintended taxes or penalties.  It is also advisable to avoid any permanent withdrawals from a retirement account unless absolutely necessary.  If you’re under 59 ½ and even if the withdrawal is within the context of divorce, the withdrawing spouse will pay a penalty and income tax on the amount withdrawn and not redeposited within 60 days.  S/he will also lose the continued benefit of any tax deferred growth that would have otherwise accumulated.  For these reasons, it should often be viewed as a last resort source of funds.

Remember that you should always look at the tax consequences related to the assets you receive in divorce.  Since, distributions from your IRAs are taxable you may not want to take the IRA in lieu of other assets.  Each circumstance is unique and so it is critical to consult with both your financial advisor and accountant as you go through the divorce process.

Sarah L. Keys, J.D., M.A.

Sarah L. Keys, J.D., M.A.


Sarah Keys holds the CDFA® designation. This specialized, professional designation focuses on pre-divorce financial planning.  A CDFA® helps guide a divorcing couple and/or their legal representation through financial issues that will affect their lives, including property valuation and division, retirement assets and pensions, spousal and child support, tax considerations, and expert witness testimony. This certification draws both on Sarah’s professional background as a family law attorney and her knowledge of financial planning and investment strategies.




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