An IRA is a retirement account many people rely on. There are numerous mistakes people can make with these accounts, and one error could jeopardize how much money you end up with after you retire. One instance that can lead to a disastrous mistake involves doing the wrong thing with your IRA during a divorce.
When divorcing, many couples focus on alimony, child custody and child support. However, there are numerous areas the couple needs to discuss, and it is easy to overlook the IRA. In many cases, an IRA becomes divided similarly to any other asset. The person who has the IRA needs to be careful of withdrawing funds to provide to the former spouse. People have ended up in U.S. Tax Court due to unpaid taxes from not properly withdrawing funds. Fortunately, there is a way you can avoid a trip to court, and it involves being mindful of how you split the account.
Steps you need to take
There are two ways you can transfer part of the money in an IRA to a former spouse after a divorce. The first way is to directly transfer funds from the IRA into another IRA account your ex owns. The second way is to change the name of the IRA to your former spouse's name, if that person retains all the money. One huge mistake you do not want to make is transferring money from the IRA into your former spouse's checking account. This leads to you needing to pay a substantial amount of tax on the account. If you need help accomplishing this, then you should not hesitate in speaking to a financial advisor to assist you.
When you split an IRA, you should establish a definite date by which you legally send over the funds. Get legal help so you do not have to go to Tax Court any time soon.