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Splitting an IRA improperly during divorce can be costly

The dissolution of a marriage in Texas typically involves dividing important financial assets, including IRA plans. In some situations, IRAs are a couple's biggest assets. A couple of tips may help with dividing these complex assets during a divorce.

The proper way in which to split funds in a manner that lines up with one's divorce decree is to complete a direct transfer of funds. This type of transfer is also known as a trustee-to-trustee transfer. Essentially, it involves moving money from the IRA of one spouse to that of the other spouse.

If a direct transfer is performed property, the retirement account will be divided without leading to any tax liability for the spouses. Before this type of transfer happens, advisors will need to look over the divorce decree in detail. The owner of the IRA, not the custodian of the IRA, will ultimately be held responsible if the necessary actions according to the decree are not taken to split the IRA.

The division of assets is one of the main sticking points of many divorce proceedings in Texas and elsewhere. After all, how the IRA is split will end up having an impact on the spouses' retirement plans. In addition, if a spouse decides to give up his or her portion of a retirement account just so that he or she can keep the family home, this may end up making retirement more of a dream than a reality for him or her. An attorney can help to provide the necessary guidance to ensure that one's best interests are upheld when negotiating the splitting of such assets in the Lone Star State.

Source: financial-planning.com, "The wrong way to split an IRA in a divorce", Ed Slott, Aug. 31, 2017

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