A new question being faced by attorneys in Florida and their clients is whether or not an IRA that’s inherited can be split during a divorce. The jury is still out on this question as there is no definitive answer.
This is a new trend that will impact current and future settlements. It could mean that IRAs will play a larger role in determining settlements.
IRAs already play a substantial role in negotiations, but these are ones that a person owns. If inherited IRAs can be divided tax-free, this will throw another large bargaining chip on the table during negotiations. Interestingly, neither the tax code nor tax regulations address the splitting of inherited IRAs during a divorce. Since there is no law saying that it can or cannot be done, many courts are currently allowing IRAs to be split during the divorce.
After the IRA is split, it still retains its inherited status. Therefore, the minimum distribution schedule does not change. The name of the individual who inherits the IRA still stays on the account. The only difference is that the ex-spouse’s name is added as well. When negotiating how IRAs will be divided, each person should be responsible for future RMDs corresponding to the percentage of the inherited IRA he or she keeps.
Another question that has been raised is whether or not inherited IRAs, especially if they were inherited prior to marriage, are considered part of the marital assets. Property that was obtained during the marriage is usually considered marital property. This is usually true even if the property or account is only in the name of one of the two spouses.
If a divorcing individual has questions about how financial assets could be divided during a divorce, he or she can consult with a Venice, Florida, property division law firm. A attorney can advise his or her client on shared accounts, asset valuation and other practical issues that may come up during the process.