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Divorce and Taxes: Retirement Accounts

by Norris Law Group on September 19, 2014

Divorce and Taxes: Retirement AccountsIn this series of posts, we have been discussing five factors that MarketWatch, a subsidiary of the Wall Street Journal, suggests are important to consider when thinking about divorce and taxes. So far, we’ve looked at why and how the state in which you live matters when it comes to taxes, the federal tax-free transfer rule, non-capital gains assets, and how taxes may be incurred even if the tax-free transfer rule applies. In this fifth and final edition, we reveal that retirement accounts are excepted from the tax-free transfer rule.

Factor #5: Retirement Accounts are an Exception to Tax-Free Transfer Rule

The tax-free transfer rule does not apply to tax-deferred retirement accounts, like IRAs or employer-sponsored retirement plans such as 401-K’s or 403-B’s.  These assets may ultimately wind up being tax-free if you transfer all or part of your account balances to your ex in divorce. But in order for this to be the case, you would need an extremely skilled “divorce team,” including your divorce attorney, a tax professional, and a financial advisor. Your divorce must include a Qualified Domestic Relations Order (QDRO). If a valid QDRO is in place, then your ex will be responsible for paying any taxes due on his or her share.

Divorce is not only an emotional experience; it is often a major financial event. As such, divorce can involve significant tax implications. If you have a high net worth or income, it is strongly recommended that you seek advice from a tax professional or financial advisor with a great deal of experience handling divorces. Your divorce attorney may be able to recommend someone to you.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

 

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