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Splitting inherited IRAs in divorce

On Behalf of | Jul 18, 2018 | Property Division |

Missouri residents who are getting a divorce may be concerned about whether they will be able to retain certain assets that they own individually. One type of assets, inherited individual retirement accounts, are being divided in divorces. Because the pretax funds may be used to offset the cancellation of the alimony deduction that becomes effective in 2019, IRAs may begin to have a more significant role in divorce settlements. The inherited IRAs are split during a divorce in situations in which the spouse that inherited an IRA wants to use a portion of the funds to fulfill an agreement made regarding the division of property.

There are no references in the tax code or regulations regarding the splitting of inherited IRAs in a divorce. This means that there are no private letter rulings, IRS guidances, court cases or other official guidelines that can be used to state definitively that inherited IRAs can be split in a divorce free of tax in the same manner in which an owned IRA can be divided.

However, this has not prevented inherited IRAs from being split during divorces. With orders that are in accordance with divorce agreements, courts have permitted the splitting of inherited IRAs for divorces. IRA custodians, who may be motivated by the unwillingness to disobey a court order, are accommodating the inherited IRA funds transfers.

Inherited IRAs that are split retain their inherited statuses, and the mandatory minimum distribution schedules for the accounts remain the same. The name of the decedent will remain on a split inherited IRA, and the new beneficiary’s name, that of the ex-spouse, will be added. A divorce attorney may work to protect the rights of clients during disputes regarding this aspect of complex asset division.

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