QDRO Corner: Dividing an Individual Retirement Account

Individual Retirement Accounts (IRAs) by law do not require a Domestic Relations Order to divide upon divorce. So, many financial institutions have created their own form that in combination with the judgment of divorce will provide all the required information they need to transfer funds from the account holder to the former spouse.

 These forms are your friends, especially when drafting the separation agreement. They will tell you things like does the former spouse need to have an account at that financial institution to receive the funds? Will the financial institution transfer with gains and losses, or do they require a flat sum as of the date of transfer? Can you designate specific securities to be transferred? What documents do you need to submit with the form?

You want to think about filling out the form and attaching it to the separation agreement. Why? Some forms only require the signature of the account holder, so the former spouse doesn’t have to agree to the form before it’s submitted to the financial institution. In a contentious case where the parties don’t trust each other this can be a big deal. Having it filled out in advance can give the parties an expectation for what is supposed to be transferred.

The biggest hurdle we’ve seen with IRA transfers is that many require the use of their form regardless of if you had a Court Order done, and many financial institutions will NOT transfer gains and losses as of a historical date on a transfer amount. Meaning, they are requiring a flat sum or percentage of the account to be transferred as of the date of division. Given the volatile market this is a difficult fact for many to swallow.

We have come up with a few creative solutions to effectively include gains and losses, and are happy to work with you on your case to see if we can come up with something that works for you. Please contact the Markham Law Firm team to discuss solutions with our team.