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Discovery - Dividing IRAs Upon Divorce
For many families, a significant portion of their wealth may be located within the couple's individual retirement accounts (IRAs). Should the family unit break down, it is therefore important to have an equitable and easy method to divide and transfer assets. Division of retirement assets can be a sticky problem and left to the court system. Yet, once a decree of divorce or separate maintenance is entered, the transfer of IRA assets from one spouse to another should not add further difficulty.
When an interest in an IRA is to be transferred from one spouse to another under a court decree, the Internal Revenue Service has attempted to facilitate as easy a transfer as possible. This accommodating position is most likely in response to the level of divorce in today's society. In general, the transferred interest in the IRA is viewed as the recipient-spouse's property and, therefore, this conveyance is acknowledged as tax-free. The IRS also offers two basic transfer methods to help during such a trying time.
The most common method is the direct transfer. The IRA owner-spouse may order the IRA trustee to transfer the necessary IRA assets directly to the trustee of a new or existing IRA in the name of the recipient-spouse. Another alternative is to transfer the assets the owner-spouse is entitled to keep to another IRA, leave the necessary amount in the old IRA for the recipient-spouse and change the name on this old IRA to that of the recipient.
This renaming method taken to its extreme is the second alternative recognized by the IRS. If all the assets in the owner-spouse's IRA are to be transferred to the recipient-spouse, a simple method of transfer is to just change the name of the account on the records of the financial institution. Sounds easy enough.
Given the inherent reporting problems, the sixty day rule, and the sometimes emotional environment of marriage dissolution, IRA rollovers are generally not permitted. Direct transfers by trustees are most often recommended. Of course, the most viable alternative will depend upon the particular situation and should be chosen with the advice of an attorney and financial advisor. #3236 7/31/05 CI-06
An uncontested divorce means that the spouses agree on the division of marital property, alimony, and child custody, support, and visitation. The spouses sign a Marital Settlement Agreement and go to court for a quick hearing to finalize the divorce. The cost of an uncontested Florida divorce is usually minimal. It generally takes 30 days after the parties sign the Marital Settlement Agreement for the court to finalize the uncontested divorce. This time will vary depending on how busy the courthouse is, but an uncontested divorce with both spouse's participation is typically the fastest.
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