Divorce and Dispersion of IRA

by Beverly Bird

IRAs don’t usually require a qualified domestic relations order, or QDRO, for division between spouses in a divorce. QDROs apply when retirement benefits pay out to two separate ex-spouses. These orders direct the retirement plan administrator to disburse payments to each ex-spouse when the payee spouse retires. IRAs funds are different in that the IRS allows you to separate payouts tax-free at the time of divorce.

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Calculating Disbursals

The first step in disbursing an IRA is to determine the portion each spouse receives. Attorneys and the courts will usually isolate the value of the IRA as of the date of the marriage. Anything contributed prior to this time is not a marital asset. They will then set an ending date. Depending on individual state law, this is either the date spouses separate, date one of them files a complaint or petition for divorce or date of the divorce. The funds that accrue between the date of the marriage and ending date are those subject to distribution. The exact percentage of this portion to each spouse depends on state law or a judge's opinion, if the court orders the division, or you might agree to terms of your own in a marital settlement agreement.

Direct Transfers

Spouses generally divide IRAs by way of direct transfer. For example, you might have a $100,000 IRA and your divorce decree or settlement agreement might state your ex receives $50,000 of that. You or your attorney can direct your IRA trustee to move $50,000 of your IRA account directly into another IRA held in your ex's name. Your ex’s IRA account might be an existing one she has already established or she can create one just for this purpose. It can be with the same financial institution or a different one. The important thing is that it is a "like" account, or the same sort of retirement investment. This is usually the neatest, simplest solution and avoids IRS taxes and penalties for early withdrawals. The IRS tax code allows such transfers to be tax-free when made pursuant to a divorce. Your ex’s portion becomes hers at the time of the transfer so if she withdraws money early at any point after that, the taxes and penalties fall to her.

Retitling Accounts

Another option is to ask your IRA trustee to re-title your IRA account. This might be appropriate if you’re giving your ex the entire account in exchange for some other asset, such as the marital home. Your trustee can simply change the name on the IRA from yours to your spouse’s and it becomes hers. If you’re dividing the IRA, you can also move the percentage you’re retaining into another IRA in your own name tax-free. Your trustee can then re-title the balance in your first IRA into your spouse’s name.


The IRS requires that you follow certain rules to ensure that IRA transfers subsequent to a divorce are tax-free. Your divorce decree must specifically state the division is occurring because of the divorce. If you make the transfer prior to your actual divorce, in preparation for it or to come up with attorney's fees, you'll lose your immunity from taxation and penalties.