In a large number of divorces in Georgia, there are one or more particularly complicated issues that must be resolved before the divorce can conclude. For some, the most challenging issues involve custody issues; for many other individuals the most challenging issues involve the division of a specific type of asset. One particularly complicated and common issue that arises in divorces is the division of Individual Retirement Accounts (IRAs). To successfully navigate these matters, many people find it helpful to obtain the assistance of a knowledgeable divorce attorney. It also helps to have an idea of the basic process involved with an IRA transfer between former spouses.
IRA Lessons Learned From a Recent Case
Recently, a divorcing couple made news when they committed an expensive IRA mistake because one of the spouses failed to pay taxes on $140,000 in IRA withdrawals that were transferred to the man’s former partner. The doctor was required to pay taxes on this amount because there are only two ways to make tax-free IRA asset transfers – either change the name on the IRA to the former spouse’s name or directly transfer assets in the IRA to an IRA owned by the former spouse. A person is prohibited, however, from transferring funds in an IRA account to a former spouse’s checking account. Fortunately, a knowledgeable divorce lawyer can make sure that you transfer IRA funds in a way that will not end up with you paying additional taxes.
The Process to Transfer IRA Assets
To avoid any unnecessary taxes, it is critical to follow several important steps. The process that should be followed to transfer IRA assets includes the following:
- The IRA owner gives a copy of the divorce decree to the IRA custodian
- The IRA owner completes the appropriate paperwork to authorize a direct transfer to the former spouse
- If the former spouse does not already have an IRA account, the former spouse must complete the appropriate paperwork to create one
- The custodian moves the fund from the IRA to the former spouse’s IRA through a trustee to trustee transfer
If this process is followed, a person is not required to report to the IRA. Tax forms 1099-R and 5498 are also not required because the transfer is not viewed as a distribution. While these requirements might seem simple to meet, it is still a wise idea to obtain the assistance of a skilled divorce attorney who can make sure that these transfers are performed properly and that you do not end up owing anything additional to your spouse.
Contact an Experienced Divorce Attorney
Each year, a large number of divorcing spouses end up transferring IRA assets in an improper manner which results in a large amount of unnecessary taxes. One of the best way to avoid these mistakes is to obtain the assistance of a knowledgeable lawyer who can make sure that any tax ramifications of this transfer are taken into consideration. No matter what issues are involved with your case, contact Vayman & Teitelbaum P.C. today to schedule an initial free consultation, during which time we will outline your various available options.