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Can Inherited IRAs Be Split Up In A Divorce?


One of the biggest questions that has come up in divorce law of late is whether inherited individual retirement accounts (IRAs) can be split up between two people who are divorcing. While the regulations, tax code, IRS guidance, private letter rulings, and court cases have not definitively answered this question, we are already seeing inherited IRAs being split up in divorce, as we discuss in detail below.

Are They Separate Or Marital Property?

One of the initial questions people have is whether inherited IRAs start out as separate or marital property. In general, inheritance is separate property, even if it is received during the marriage. However, if that separate property is commingled with marital property, it can lose its separate status and become marital property (for example, a home that is inherited but retitled and paid for jointly by each spouse).

The same rule applies to retirement accounts: if it was acquired during the marriage—even if it is in only one person’s name—it becomes marital property if any funds were contributed to it from the couple’s earnings during marriage.

However, inherited IRAs are a different story: They cannot be jointly owned, and new contributions cannot be made to these accounts, which seems to indicate that they belong in the “separate property” category.

Still, the definitive answer ultimately lies in state law and how it treats inherited IRAs: For example, in Florida, inherited assets generally remain with the individual who inherited them unless those assets were commingled in name or used to support the marriage. Questions can still come up regarding any appreciation on the inherited IRA fund during the marriage—whether this becomes marital property can sometimes depend upon whether account management was active or passive.

The “Rules”

Pursuant to a court order and divorce agreement, a number of courts have already allowed inherited IRAs to be split up in divorce, and custodians are subsequently accepting the transfers of these inherited IRA funds, signaling a potential new trend in future divorce agreements that could make up for the lost alimony deduction that starts in 2019. A number of couples have decided to use inherited IRAs to satisfy agreed-upon property splits. Couples should work with experienced divorce attorneys to make this an explicit part of the divorce agreement, which includes confirming—with each spouse—that they will be responsible for future RMDs (based upon the percentage that they keep).

Other “rules” to keep in mind when it comes to inherited IRA funds that are split up and transferred after divorce include the following:

  • The account retains its inherited status;
  • The decedent’s name stays on the account;
  • The name of the new beneficiary is added; and
  • The required minimum distribution schedule remains unchanged.

Discuss With an Experienced Florida Divorce Lawyer

If you are contemplating or already going through a divorce, you likely have many questions about what you and should not do in order to ensure that you are protected. Contact our experienced divorce and property division attorneys at the Arwani Law Firm, PLLC today to find out how we can help.


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