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Splitting an IRA can be complicated

The divorce rate for individuals 50 and older has gone up in recent decades even as divorce rates overall have dropped. While any adult can have an IRA, older individuals in Wisconsin and throughout the country are more likely to have them. Therefore, it is important to understand that an IRA can be split in a divorce and that there is a process that needs to be followed to do so. That process may be more complicated if a person is taking 72(t) distributions.

These annual distributions allow individuals to obtain money in their IRAs without penalty before they reach age 59 1/2. Generally speaking, people opt to take a 72(t) distribution because of cash flow issues or because they chose to retire early. However, there is no clear guidance from the IRS as it relates to splitting these distributions in a divorce.

In fact, some of the guidance that the IRS has provided contradicts other rulings that it has made. The key question is whether dividing distributions in a divorce constitutes a modification of a payment schedule. If so, an individual could be assessed a retroactive 10% penalty on any distributions that have already been received. Other penalties could apply, which may result in less money ultimately being split between a divorcing couple.

Generally, money kept in an IRA or another retirement account can be divided as part of a divorce settlement. Those who have questions about the property division process or other issues that may arise during settlement talks may want to speak with an attorney. An attorney might also be able to look at a prenuptial or postnuptial agreement to determine if its terms are valid. If they are, property may be divided based on the language contained in the document.

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