Transferring IRA Assets in a Divorce


IRA assets are often a hotly contested financial asset in a divorce, especially when a self-directed IRA contains alternative investments with the potential for significant future returns. It’s important to understand the rules for transferring ownership of IRA assets in a divorce to avoid unnecessary tax and penalties.

Typically, any withdrawal from a traditional, SEP or SIMPLE IRA is taxable to the IRA owner in the year of distribution. If the IRA owner is younger than age 59½, the distribution will be subject to an additional 10% early distribution tax. When all or a portion of an IRA owned by one spouse is awarded to a former spouse in a dissolution of marriage, however, the tax laws allow IRA assets to be split without immediate tax consequences to either spouse, if certain requirements are met.

To obtain this relief, the portion of the existing IRA being awarded to an ex-spouse must be transferred to an IRA set up by the ex-spouse. The transfer is not treated as a taxable distribution, and the former spouse becomes the owner of the portion transferred to his or her IRA. The IRS calls this a “transfer incident to divorce.”


Two Requirements:

The language of the court document and the actions of both spouses are critical to the beneficial tax consequences.

A divorce or separation order addressing the IRA – A domestic relations order, judgment, decree, or approval of a property settlement agreement issued under the domestic relations law of a state must award all or part of one spouse’s interest in an existing IRA to the other spouse. The order should address the dollar amount or percentage of the IRA being awarded, any timing requirements, and depending on the type of investment involved whether the investment is to be liquidated before transfer or split ownership will be permitted. If the IRA owner initiates a transfer without an order addressing the disposition of the IRA, the IRA owner will be taxed on the distribution – even if the assets were used to satisfy a child support order or other financial obligation as a result of the divorce.

A direct transfer of assets to an IRA – The IRA assets must be moved by direct transfer. The assets cannot be withdrawn by either spouse and subsequently deposited into an IRA. If the former spouse takes a payment from the IRA, even if the payment is ultimately used to fund an IRA, he or she will be taxed on that IRA distribution.


Transferring the Assets

IRA custodians will require a copy of the dissolution judgment or order (or at least the relevant pages) before a transfer will be initiated. If the entire IRA is to be transferred to the other spouse, the tax laws permit a transfer of ownership through a name change on the IRA account; however, many custodians require the spouse receiving the IRA to sign an IRA document. Additional documentation may be required to change ownership on the title of the asset, as well. If just a portion of the IRA is to be transferred, the receiving spouse must establish a new IRA or designate an existing IRA to receive the transfer. The original IRA owner should direct the IRA custodian to transfer a fixed dollar amount or a percentage (based on the court order) of the IRA directly to the custodian of the former spouse’s IRA. The IRA owner should also give instruction or consent to liquidate the investment or transfer the asset in-kind. Liquidating investments to split the value of the assets may not be ideal given market conditions or timing. Depending on the type of asset involved, divorcing spouses may agree to each own a percentage of the asset through their separate IRAs.

Once the transfer is complete, the receiving spouse will treat the IRA as his or her own and must follow the IRA rules for contributions and distributions. It is not a beneficiary IRA.


Is a QDRO required when transferring IRA assets?

When assets in an employer retirement plan such as a 401(k) plan are awarded to a former spouse as part of a divorce, the court order must satisfy certain ERISA requirements that make it a qualified domestic relations order (QDRO). The QDRO rules do not apply to IRA assets. However, an individual who takes ownership of a former spouse’s qualified retirement plan assets under a QDRO may roll over the plan assets into a self-directed IRA.


Learn more about IRA transfers

You can find more information on transfers incident to divorce and IRAs in two IRS publications:

Publication 590-A, Contributions to Individual Retirement Arrangements
Publication 504, Divorced or Separated Individuals


If you have questions, please contact the Mainstar Trust team at 1-800-521-9897 or