Hi there and welcome back. We’re glad you could join us to wrap up this discussion on the best ways to divide up your various retirement accounts and annuities when you get divorced. And yes, we know – reading about how to deal with finances isn’t the most exciting thing you’re going to do today. Especially if you’re already stressed out and under pressure because of a possible divorce. But while it isn’t super fun, it is super important! And as we’ve pointed out to many other Lansing area residents over the years, taking the time now to prepare for your financial future makes all the difference in setting you up for success down the road.

How to divide your IRAs when you get divorced:

Previously we looked at how to divide up your 401k, however now we’re going to look at some options for how to handle your IRA account when you get divorced. Dividing an IRA is usually a pretty straightforward process, so this may end up being simpler than the other options you have to consider. However, it’s important to remember that even if you had your IRA from before you got married, any contributions you made during your marriage would usually count as marital assets. Which means your spouse could legally claim rights to a portion of them during the divorce.Keep in mind that there are a few exceptions to every rule. 

There are several ways you can handle your IRA accounts in a divorce

The simplest way, which many Ingham County, Eaton County and Clinton County couples prefer to do, is to do a trustee-to-trustee transfer. This moves assets from one spouse’s IRA account to the other spouse’s, which allows you to avoid paying taxes on that amount, and the dreaded 10% early distribution penalty if you happen to be under the age of 59 ½. 

One of the nice things about splitting IRAs is that it makes no difference whether the account is a Traditional, a Simple, or a Roth IRA – they all get handled the same way. The only real difference is that Roth IRAs are tax free, which could have an effect on the ultimate valuation of that amount when asset divisions are being made.

It’s important to remember that the IRA owner is responsible for dividing up the IRA – it’s not the custodian’s job. So you need to understand what the law mandates, since you’ll be dealing with it directly. That means you’ll need to give the custodian very specific instructions before any paperwork gets finalized. You may also want to discuss your options with a CPA to ensure that you’ve crossed all the T’s and dotted all the I’s. A chat with your Lansing area divorce attorney would be a very good idea at this point! In short, there will need to be a court order that conforms to state and federal law in order to properly divide up the IRA. 

How to divide your annuities when you get divorced:

Dividing annuities, unlike dealing with IRAs, is a really complex business. There are all kinds of tax implications involved, and a lot depends on what you and your spouse decide during your asset division negotiations. There are several options available to you, and we recommend that you discuss all the options with your divorce attorney before making any decisions. Finances can be a complex subject, and having someone else to help you work through the numbers and plan for your future can be immensely helpful.

Some common ways of dividing annuities in a divorce:

• Start two new contracts by withdrawing from the existing annuity and dividing the money into the two new contracts, one for each spouse. 
• Start a new contract by removing the money from one spouse’s annuities account and placing it in the other spouse’s new account.
• Sell or surrender the account by withdrawing the money and distribute the proceeds.

Having an attorney who thinks outside the box can be a big help!

Making financial decisions for the future can be a daunting process. So the more expert help you get, the better. And that’s where we come in. Here at The Kronzek Firm we know how Michigan law affects your financial options, and we make it a point to stay up to date on any changes that might have an impact on our client’s future security. Separation of assets can be a really challenging process during a divorce, so whether you live in Lansing, Charlotte, or Howell, make sure you have a highly experienced family law attorney on your side who can address your financial situation with creativity. Call 517 886 1000 today. We’re here to help and we bring with us more than 25 years experience dealing with divorce, custody, asset division and other family law issues.