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Dividing your IRA in a gray divorce

On Behalf of | Jul 15, 2020 | Divorce

The divorce rate among couples in the United States overall has dropped over the last few decades, yet the instance of marital splits among older couples has increased. If you and your spouse are over 50 and considering divorce in Alabama, you probably have questions on how to split up the assets you have amassed, including your IRAs.

The IRS provides little guidance

If you haven’t touched any of the funds in your IRA, dividing your assets from these accounts is pretty cut and dried. Problems arise, however, if you have encountered cash flow problems and needed to take early distributions from your retirement funds.

If you or your spouse have 72(t) distributions, specially scheduled annualized payments that you have taken from one or more IRAs before age 59-1/2, big complications can occur if these funds will be split as part of the divorce settlement.

Some distributions may be exempt from the IRS’ usual 10% penalty of tapping from your retirement fund before age 59-1/2. The exceptions include:

• Distributions to disabled IRA owners
• Distributions to pay for qualified higher education expenses of the owner
• Distributions to pay an IRS levy
• Distributions to pay for the first-time purchase of a home

The U.S Congress has also created a broader exception to the rule that allows for no-penalty distribution if the IRA owner has taken an early retirement. The rulings are complicated and should be carefully considered if you are considering divorce.

How you should prepare

Before heading into divorce proceedings, you may want to consult your financial advisor to determine whether any of your early distributions will complicate the division of your retirement assets during divorce proceedings. Even in the best of circumstances, splitting up can become contentious. By coming prepared with accurate financial information to divorce negotiations, you can help smooth out the process and make the situation easier for everyone involved.


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