Pensions and retirement accounts are martial property in Alabama that must be divided equitably under its equitable distribution laws. Property division applies only to the amounts acquired during marriage. Any amounts accumulated during marriage are the spouse’s separate property unless these funds were commingled with the couple’s marital property.
Division of an IRA during divorce
An IRA does not require a qualified domestic relations order, or a QDRO, to be in effect, unlike some other types of assets such as pensions and 401(k)s. The divorce decree or separation agreement must specify how the IRA will be divided. The account owner must give the decree or agreement to the IRA sponsor.
To avoid taxes and penalties, the agreement should set forth that a percent or dollar amount of the IRA account owner’s balance should be deposited in a spouse’s IRA in a direct trustee-to-trustee transfer. If the recipient spouse removes cash in the transfer, taxes will be owed on the withdrawal. If the recipient is under 59½, a 10 percent early withdrawal penalty is also charged.
An account owner who withdraws a distribution from the IRA to pay to a spouse in a divorce will be taxed on that payout. If the owner is under 59½, there will also be a 10 percent penalty.
What to keep in mind
Spouses should fully disclose their assets such as pensions and retirement accounts. Determining the value of these assets may be complex and require the assistance of a financial expert or accountant.
Couples may negotiate agreements which set forth how they want this property to be divided. These assets may be traded in return for other valuable property such as the couple’s home. Prenuptial agreements entered before marriage and postnuptial agreements executed afterwards can also govern division.
Property division in an Alabama divorce can be legally and financially complicated. An attorney can advise spouses on options that help meet their needs and help them pursue a fair and reasonable decree.
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