When it comes to divorce, as in all things, it pays to be attentive to the details. The emotional hurricane that a divorce can present often clouds sound judgment and keeps otherwise reasonable people from being able to make prudent, long-term choices when splitting up assets.
While the Internal Revenue Service tends to not tax the transfer of assets between spouses who are divorcing, there are still ways that a poorly executed division of property can end up costing both spouses dearly. Two common areas that may present long-term issues are the division of retirement funds and Individual Retirement Accounts.
Retirement funds are regularly seen as a joint marital property by the court. If this is the case for you, it will mean that your spouse will continue to have a stake in your retirement fund distribution long after you are parted. It is vital to make sure that distribution is properly set up to avoid complications with the IRS.
Conversely, an IRA is often determined to solely be the property of its original owner, not joint marital property. This is not one-size-fits-all, however. If your IRA received contributions that came from your income (which would otherwise have been considered marital property) while you were married, then your spouse can claim that he or she has a right to an appropriate portion of the assets in the IRA.
It should be noted that, with careful execution, it is possible to transfer assets from one IRA to another through a divorce decree without incurring taxation, but it is not automatic.
There are many reasons why it is wise to seek experienced counsel in a divorce, and those become ever more clear when comes to the detailed work of dividing up complex assets. Without an experienced, qualified legal guide, you may be setting yourself up to lose significant sums through poorly-executed documents. An experienced attorney can help you navigate this season with confidence and set you up to succeed in the future.
Source: Findlaw, “Divorce, Taxes, and Your Estate Plan,” accessed Dec. 01, 2016