Inherited IRAs and property division during divorce

On Behalf of | Jul 19, 2018 | Property Division

Sorting out financial and property division issues can be some of the most complex aspects of the end of a Texas marriage. This is especially true when the couple has significant assets or has been married for many years, as their property is often deeply intertwined or may be held in a number of investment accounts and funds. Retirement accounts are often among the most significant assets divided during a divorce and frequently represent the largest single part of a couple’s marital property.

While regular individual retirement accounts have always been subject to division in a divorce, a process which can be handled tax-free through the issuance of a proper court order, inherited IRAs are increasingly being used to meet the demands of property division. In some cases, it is not clear that these assets meet the definition of marital property because they are part of an inheritance. However, the appreciation of the IRA may be considered part of marital property, and even when the account itself is not required to be divided, it could be used in the place of another asset to satisfy the demands of property division.

The treatment of inherited IRAs is not discussed in the tax code, unlike regular IRAs, which have a standard process for tax-free division during a divorce. However, an increasing number of divorce cases are witnessing the use of inherited IRAs as part of the settlement, and courts are issuing orders for their division. When dealing with asset division during a divorce, everything from investment accounts to the marital home will be distributed according to the agreement reached. A family law attorney can strive to achieve a fair settlement for a client in this regard.