How are IRAs Divided in Divorce?
Splitting up financial assets is usually one of the most complex parts of any divorce. Even when both parties are still communicating effectively, such as in an uncontested or collaborative divorce, deciding who gets what can be a contentious affair, especially with long-term assets such as retirement accounts.
There are many steps a couple must take in a divorce to ensure these assets are divided equitably and legally. Read on to find out more.
What Is an IRA?
An Individual Retirement Account (IRA) is a financial tool used for long-term savings which offers several tax advantages over traditional savings accounts. They are provided by several banking institutions, investment companies, individual brokers, and credit unions. The money deposited into an IRA can typically only be accessed after the age of 59½ and is either untaxed or taxed at a lower rate, depending on the type of account. IRAs are similar to 401(k) accounts, except 401(k)s are only provided through employers.
There are several different IRAs, such as Roth IRAs, SEP IRAs, and SIMPLE IRAs. Each has different requirements and is geared toward either individuals or businesses. For example, businesses and self-employed individuals can use SEP or SIMPLE IRAs, while traditional and Roth IRAs are meant for individuals who are not business entities.
The money deposited into an IRA is meant to stay long-term and cannot be removed or transferred to other accounts without paying taxes and fees. Contributions to IRAs are limited to a certain amount each year, and the tax penalty for withdrawals varies based on the type of IRA. For example, a traditional IRA usually has a contribution limit of $6,000 per year, and any withdrawals taken before the age of 59½ would incur a tax penalty equal to your standard income tax rate.
The good news is that for most individuals, traditional IRA contributions are tax-deductible.
Are IRAs Considered Marital Property?
The answer to this question depends on when the IRA was established and who contributed to it during the marriage.
Suppose the IRA was started by one party before the marriage, and only one party contributed to it throughout the relationship. In that case, it may be considered separate property, but in most cases, IRAs are regarded as marital property. This holds true regardless of whose name is on the IRA.
An exception would be an inherited IRA that is kept separate from any joint accounts. In that case, the IRA would be separate property.
How Are IRAs Divided in Divorce?
In Georgia, the process usually begins with the final divorce decree. This official legal document formally outlines how all marital assets and rights will be divided between the parties, including retirement assets like 401(k)s and IRAs. If an IRA is to be divided, the party receiving funds must have an IRA established in their own name. IRAs can only have one name per account.
The divorce decree is sent to the custodian of the IRA, which is the bank, brokerage, or credit union that manages the retirement account, with instructions to transfer funds from one IRA to another. Depending on the circumstances, one party may be required to open a new IRA under their name with the current custodian before transferring funds.
What Are the Tax Penalties of Dividing an IRA?
As long as the transfer of IRA funds is a direct owner-to-owner transaction, no tax penalties should be incurred. If funds are withdrawn from an IRA to give to one of the parties as a part of the separation, then the tax penalty would be the recipient’s responsibility.
How a Georgia Family Law Attorney Can Help
Hiring a lawyer to help with your divorce is essential to help protect your rights and ensure an equitable division of marital assets.
Your lawyer will take an objective viewpoint and look at the facts without bias. We will take the emotional aspects of divorce out of the equation and use our skills and experience with divorce proceedings in Georgia to get you the positive outcome you need to move on with your life.
An attorney can make the entire divorce process easier for all parties and may decrease the time it takes to finalize the separation. We can explain procedures, help gather documentation, and provide the support you need during this challenging time.
Call Kessler & Solomiany, LLC Today
If you need help with the division of assets, child support, alimony, or mediation, contact the attorneys at Kessler & Solomiany, LLC. We have the experience and skills to get the outcome you need. Call us today at (404) 688-8810 for a confidential consultation, and let us help you get through your divorce in the best way possible. Call Kessler & Solomiany, LLC today.