Client Question: Can an IRA be transferred to or from my former spouse?
Great question.
YES. Many divorce settlements require the transfer of some amount of funds in an IRA account from one party to the other.
Here are our recommended steps for completing the transaction.
We suggest this process be started immediately. This way, you may be sure you have control of the assets you fought so hard for during the divorce process.
Open a new account.
In order receive the funds we suggest the transferee open a new IRA account in their individual name. If you already have an IRA account it can be used to receive the funds.
Prepare paperwork for transfer.
Some custodians require a simple letter of authorization signed by both parties and a copy of the divorce judgment to complete the transfer. Others require signature guarantees on the letter which must be obtained from a local bank. The letter should provide the source and destination account numbers. We suggest opening the new account from step one at the same custodian as the currently existing account. It will make the transfer process easier because the custodian remains the same.
Make sure you don’t….
No matter what you do… DO NOT take a distribution out of the IRA. If you are under age 59 1/2, you will end up paying taxes and penalties on the distribution. The process we want you to complete is called a trustee to trustee transfer. It may help to contact the current custodian and simply tell them the transfer is pursuant to divorce and you would like to complete the transfer in this format.
Update your beneficiary designations.
An IRA passes to the named beneficiary if you should pass away. Make sure you have removed your former spouse if you do not want them to inherit your share of the assets.
If you follow these steps there should be no taxes or penalties on the transfer.
Let us help you.
Wellspring Divorce Advisors provides comprehensive post-divorce transition management services for our clients and can assist you with the transfer of IRA accounts pursuant to divorce settlements. Let us know if we can help in any way. We also offer long term financial advisory services through our sister companies.
Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice. Contact us to find out how we can help you through this process.
