Many legal professionals in Washington recommend that you try to reach an agreement with your partner in order to avoid losing some of your assets in a prolonged court battle. Some of the significant assets to be divided may include retirement accounts. Read below to learn more about what annuity and IRA options are available to you.
Make an exchange
Some people decide to exchange their 401(k) account for a separate but equal asset. This decision may require the help of an accountant to make calculations, and you may need to negotiate returns with your spouse.
Divide IRA assets
Dividing an asset depends on your state’s community property laws. If you or your spouse opened up an IRA during the marriage, that account is legally considered to be a marital asset. Inherited assets, on the other hand, are generally considered to be a separate asset.
A trustee-to-trustee transfer works by moving one spouse’s IRA to the other spouse’s personal bank account. This helps avoid excess taxes and the 10% early distribution penalty.
Liquidate or roll the 401(k)
Liquidating a retirement account and handing half of the money directly to your spouse is one option. This is one of the least recommended ways to divide your assets because it can come with tax penalties and may require legal approval from your partner. Additionally, not everyone is eligible for this approach to dividing assets. An IRA rollover can avoid tax penalties and gives the other spouse the ability to directly manage the 401(k) account.
How should you divide an annuity?
You can divide the annuity by creating a new contract through withdrawing the annuity itself and dividing it into two separate contracts. This dividing method is classified as a non-taxable event. However, the recipient must pay an income tax based on the amount of annuities distributed. Of course, the amount of money distributed will depend on your individual situations.
There are four main ways that you can split up an IRA: liquidate it, roll it over, make an exchange or do trustee-to-trustee transfer. You may want to carefully go over the implications of each of these methods with an experienced attorney and tax professional.