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Dividing an IRA during a divorce

When people in Texas decide to divorce, they may face a range of personal, emotional and practical concerns. Some of the most important changes that can come with the end of a marriage are the financial effects of property division, especially when it comes to retirement accounts. An increasing number of people across the country are divorcing at the age of 50 and up, meaning that the division of retirement accounts has become more complex. This may be especially true for people who are already receiving distributions from their accounts.

In most cases, dividing an individual retirement account, or IRA, is essentially straightforward. The growth and additions to retirement funds during the marriage are generally considered part of community property, and IRAs, unlike 401(k)s and other employment-associated plans, do not require a specialized court order called a qualified domestic relations order to complete the distribution. Some concerns may arise when people are already taking 72(t) distributions from an IRA. These are distributions from the plan taken before the age of 59.5, usually taken due to financial problems or early retirement. These distributions can be subjected to regular income taxes as well as a 10% tax penalty, which may need to be considered during divorce.

There are some exceptions to the penalty, including distributions to people with severe disabilities, those made to settle an IRS levy, those for costly medical bills or higher education, or funds for a first-time home purchase. If a couple is dividing an account where these distributions are being taken without an exception, the tax penalty may also be considered during the divorce as a liability for the spouses to divide.

Dividing retirement funds can be a complex issue. A family law attorney may advise a divorcing spouse on issues like property division and the financial impact of divorce.

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