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Q: IRA Spousal rights on divorce - non community property state ( Answered,   0 Comments )
Subject: IRA Spousal rights on divorce - non community property state
Category: Business and Money
Asked by: juanquix-ga
List Price: $25.00
Posted: 09 Mar 2006 13:42 PST
Expires: 08 Apr 2006 14:42 PDT
Question ID: 705485
I earned all the assets in my IRA before I met and married my current
wife.  My brother has always been my beneficiary.  I have been married
to my current wife for 15 years.  She has made no contribution to my
wealth.  She has committed adultery and I plan to divorce her.  We do
not live in a community property state.  Does she have any rights in
my IRA?
Subject: Re: IRA Spousal rights on divorce - non community property state
Answered By: wonko-ga on 14 Mar 2006 12:23 PST
Although the precise answer will depend upon your state of residence,
in general the answer is no.  The value of the account at the time of
your marriage is your separate property.  Since you made no further
contributions to your IRA after you were married, your wife probably
does not have any claim on the increase in value of your IRA account
during the marriage either.  Non-community property states follow
equitable distribution rules.  I have provided examples of how these
are applied to retirement plans in Missouri, Virginia, and Illinois.

In the event a court finds that your spouse is entitled to a portion
of your IRA, you will want to carefully follow IRS-approved procedures
for the transfer.  Otherwise, you can wind up with a horrendous tax
bill.  I have provided material describing them at the end of the
Sources section below.




"However, only a minority of states have "community property" rules.
Most states follow Equitable Distribution rules which classify jointly
owned property as 'Marital.'"

"Separate property is the opposite of community property and includes
everything which a husband and wife own separately. In the event of a
divorce, separate property does not need to be split between the
couple. In most instances, separate property qualifies as:

Assets owned before the marriage...."

"Community vs. Separate Property in Divorce" Schaeffer's Investment
Research, Inc. (2006)

"For the purposes of the Missouri divorce act, 'marital property' is
all property acquired by either spouse after the marriage, except for
property acquired in a specific manner excepted by the statute. The
exceptions to the marital property rule are property acquired in the
following manner:

...5. The increase in value of property acquired prior to the marriage
or pursuant to subdivisions (1) to (4) of this subsection, unless
marital assets including labor, have contributed to such increases and
then only to the extent of such contributions."

"Division of Separate and Marital Property in Divorce" By Zerman &
Mogerman, LLC (July 17, 2004)

"VIRGINIA: Moran v. Moran, 29 Va. App. 408, 512 S.E.2d 834 (1999). 

The husband should [have] been awarded the passive increase in value
on his premarital investment in his employer's defined contribution
pension plan."

"The court noted that the Virginia equitable distribution statute
defines income received from separate property as separate if not
attributable to the personal efforts of either party. Va. Code Ann.
20-107.3(A)(1)(iv). Accordingly, the court held, passive income earned
on premarital contributions to a defined contribution pension plan is
separate property."

Group, Inc. (1999)

"ILLINOIS: In re Marriage of Raad, ___ Ill. App. 3d ___, 704 N.E.2d 964 (1998). 

The increase in value during marriage of the premarital portion of the
wife's individual retirement account must be classified as her
nonmarital property."

"Increase in Premarital Value. The Illinois Appellate court held that
the trial court's classification of the account was erroneous. The
court agreed with the trial court that the value of the account as of
the date of marriage was the wife's nonmarital property. Furthermore,
the court continued, the amount that the wife contributed to the
account during the parties' marriage was marital property, because
pension benefits are marital to the extent they are earned during

But the analysis did not end there, the court said. The wife's account
increased in value, and the increase in value attributed to the
$24,169 was her nonmarital property. Similarly, the increase in value
attributed to the $6,257 of marital property was marital property.

But the trial court did not apportion the increase in value of the
account in this way, the court observed. Instead, the trial court
effectively found that the increase in value of the nonmarital
property subsequent to the marriage was marital property. That finding
was contrary to Illinois law, the court declared. Consequently, it
remanded for the trial court to determine the increase in value
attributed to the marital property and the increase in value
attributed to the nonmarital property."

"IRA - PREMARITAL CONTRIBUTIONS" National Legal Research Group, Inc.

"IRAs and SEPs
You don't need a QDRO to split up your IRA accounts, but you still
need to be very careful. Here's the deal. You can roll over money
tax-free from your IRA to an IRA set up for your ex if and only if the
transfer is called for by your divorce property settlement. Then your
ex can manage his or her IRA and defer taxes until money is withdrawn.
At that point, your ex ? not you ? will owe the taxes.

This is what you want. So make sure your divorce papers include the
following magic words: "Any division of property accomplished or
facilitated by any transfer of IRA or SEP account funds from one
spouse or ex-spouse to the other is deemed to be made pursuant to this
divorce settlement and is intended to be tax-free under Section
408(d)(6) of the Internal Revenue Code."

If money from an IRA account set up in your name gets into your spouse
or ex-spouse's hands in any other fashion, guess what? You are on the
hook for any taxes. Plus you will generally owe the 10% penalty if
this happens before you are age 59 1/2. Once again, this amounts to a
tax-free windfall for your ex at your expense."

"Splitting the Retirement Accounts" SmartMoney (2006)

Search terms:  divorce IRA separate property; divorce IRA
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