It is not unusual for many Alabama residents to worry about how their assets will be divided during divorce. This area of family law can often have more complexities than simply giving certain property to one party or the other. When it comes to retirement accounts especially, individuals could face serious tax implications and other issues if the accounts are not divided correctly.
With an IRA, taxes on a transfer could be applied if individuals do not obtain the proper divorce decree. This decree must coincide with state law when it comes to marital property and will likely need to come from the court presiding over the case. If individuals simply make a property division agreement and split the assets without following the proper legal channels, they could face serious financial repercussions.
Additionally, if individuals want to further avoid tax penalties, they will likely need to directly transfer the accounts from one IRA directly to the recipient’s IRA. This type arrangement is known as a trustee-to-trustee transfer. If the individual who received the funds chooses to take them out of the IRA account, that withdrawal would be subject to taxation.
Retirement accounts are often important to individuals as those accounts hold the funds that will allow them to provide for themselves after they stop working. When those funds are divided during divorce, many Alabama residents may take such action as a considerable financial blow. As a result, they may want to understand how to minimize taxation issues involved with dividing retirement accounts. Additionally, they may also want to speak with their family law attorneys to ensure that they are taking the proper legal steps when it comes to dividing their property.
Source: financial-planning.com, “The wrong way to split an IRA in a divorce“, Ed Slott, Aug. 31, 2017