Benefits of an IRA: Sharing IRAs in divorce settlements

Generally, a married individual’s retirement savings account is considered part of both spouse’s retirement savings. If the couple divorces, they would need to decide how to share each marital asset including IRA deposits made during the marriage, and determine if the account should be split between both spouses or allocated to one.

If an IRA is included in the property settlement agreement, any transfer of the IRA funds from one spouse to the other must be done under a legal separation agreement or divorce decree. This legal document must specifically state how much of an IRA should be transferred to the receiving spouse.

Please note that the spouse that receives the assets is responsible for paying any income tax that is due on any distribution. The movement of assets to the receiving spouse must be done as a non-reportable transfer where the amount is not reported on either spouse’s tax return or to the IRS. Any subsequent distribution would then be reported to the receiving spouse’s and must be included in their income.

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