Law Offices of Matthew S. Schultz, P.C.

Inherited IRAs in a divorce property settlement

People in Phoenix considering divorce may be concerned about how their assets will be affected by the property division process that accompanies the end of a marriage. Individual retirement accounts, or IRAs, and other forms of retirement funds are often some of the most significant assets involved in a divorce settlement. For couples at all levels of wealth, these accounts are often large and can be invested in a number of different ways. While individually owned IRAs have long been a standard subject of property division in a divorce, there has been an increasing trend toward the use of inherited IRAs during a divorce settlement.

In many cases, inheritances are not ordinarily considered part of marital property to be divided in a divorce. This is especially true when the inheritance is never commingled with marital property, and given the way that inherited IRAs are used, this is almost always the case. However, even when the value of the inherited IRA is not subject to division, the account can often be used to satisfy the needs of the property division settlement elsewhere.

It is well-established that owned IRAs can be divided during a divorce without a tax penalty. In fact, the tax-free nature of IRAs may be used as a means to structure a fair divorce settlement differently after changes in the tax treatment of spousal support go into effect in 2019. The treatment of inherited IRAs in this context is less clear as the topic is not addressed in the tax code or other regulations.

When people go through a divorce, the financial aspects can often be the most difficult parts of the end of a marriage. A family law attorney may work with a divorcing spouse to represent his or her interests and negotiate for a just settlement on matters including property division and spousal support.

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Law Offices of Matthew S. Schultz

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