Skip to content
  • There are no suggestions because the search field is empty.

How are distributions from an IRA to a former spouse handled?

Before proceeding with a distribution or transfer to a former spouse, financial organizations should request and review a copy of the divorce decree or legal separation paperwork for specific instructions on how to handle the distribution from the IRA. If the decree or legal separation paperwork is silent on how the funds are to be distributed (payment via check to former spouse, trustee-to-trustee transfer to former spouse’s own IRA, etc.) or the amount that should be distributed (stated dollar amount, percentage of the IRA as of a specified date, etc.) it is recommended that the divorce decree or legal separation paperwork be amended to provide specific instructions.  (Note: a qualified domestic relations order (QDRO) is not applicable to IRAs. A QDRO is a legal order used to divide retirement plan assets (such as a 401(k) or 403(b) plan) in divorce.)

Once it is clear how to handle the withdrawal (or transfer, if applicable) proceed as instructed within the decree or legal separation paperwork.

If the decree or legal separation paperwork requires a distribution to the former spouse, he or she will generally be required to include the amount as income and may also incur an IRS 10% early distribution penalty (unless an exception applies). The penalty applies to the taxable portion of the withdrawal and is in addition to regular income tax, as IRAs do not have a QDRO‑type exception to the penalty like qualified retirement plans do.

The only divorce-related exception for IRAs is if the amount is transferred to the former spouses’ IRA pursuant to the terms of a divorce decree or legal separation instrument (IRC section 408(d)(6)). However, the transfer must be done by:

    • changing the name on the IRA from the IRA owner’s name to that of their former spouse (if transferring the entire interest in that IRA), or
    • a trustee-to-trustee transfer from the IRA to one established by the former spouse. Note: an indirect rollover doesn't qualify as a transfer to the former spouse even if the distributed amount is deposited into the former spouse's IRA within 60-days.