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How to treat inherited IRAs in a divorce

On Behalf of | Jun 4, 2019 | Divorce

There is no true consensus as to whether an inherited IRA can be included in an divorce settlement. However, this doesn’t change the fact that inherited IRAs have been a part of divorce settlements in Hawaii and throughout the nation in the past. Often, they are allowed by courts to be split tax-free as long as it is done pursuant to a court order. Once a court has made such an order, an IRA administrator is not likely to defy it.

Changes to the tax treatment of alimony have made inherited IRAs popular bargaining chips in divorce settlements. However, it is not clear if they should be labeled marital property to begin with. This is because inherited items are generally considered to be separate property even if they were transferred during the marriage.

It is not possible to make additional contributions to an inherited IRA. Therefore, it is not possible for any portion of the balance to become marital property. Of course, it is possible to use separate property to create a division of assets that both parties can be happy with. It is important to know that the terms of the inherited IRA do not change even if they are split. This means that minimum distributions may still need to be made, and any distributions made without a court order are still subject to taxation.

Almost any asset can be included in a divorce settlement if both parties agree to its inclusion. A family law attorney may be able to further explain the potential tax implications of splitting an IRA or any other item when a marriage ends. It may also be a good idea to work with a financial professional as well as with an estate planning professional to determine the best way to structure the final agreement.

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