How to Split an IRA in a Divorce


Although you may divide an IRA without a specific court order during your divorce, doing so can result in unnecessary tax penalties. To avoid these penalties, you will need to make sure that your final divorce degree or separation agreement is considered a qualified domestic relations order (QDRO) pursuant to the laws of your state. Because QDROs have specific language requirements, consider retaining an attorney to review your divorce papers to ensure that they are in compliance with state divorces laws and IRS regulations.

Set up an IRA for the other spouse. Prior to dividing the first spouse’s IRA, the second spouse should open an IRA under her own name.

Determine what portion of the IRA the spouse will receive. Some states legally prescribe how much of the first spouse’s IRA the second spouse should receive. Prior to negotiating the exact amount, talk to an attorney or research your state’s laws on retirement accounts and the division of marital property.

Make sure your divorce decree or settlement paperwork qualifies as a QDRO. To be considered a QDRO, your paperwork must be approved by the court and comply with ERISA § 206(d)(3)(C)(i)-(iv) and Internal Revenue Code § 414(p)(2)(A)-(D). These statues outline specific information that must be included in the order.

Transfer the funds into the spouse’s new IRA. Once you have received your QDRO, remove the second spouse’s share of the IRA and transfer the funds into the new account.

Have a copy of the QDRO ready to show the IRS at tax time. Your accountant may need to see a copy of the QDRO when she prepares your taxes, in order to ensure that you are not assessed early withdrawal penalties.

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