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Dividing IRAs early may have negative impacts during divorce

It is not unusual for New York residents to handle issues associated with ending their marriages in the manner they see most fitting. However, if parties do not have the correct information, the decisions they make when it comes to property division and other divorce aspects could have negative repercussions. In particular, parties could face considerable financial detriment if they do not properly divide their IRAs.

One man's account of incorrectly dividing an IRA was recently given in a report. As many people know, altering funds in an IRA by means of withdrawals and transfers can often come with penalties. The man involved in this case had agreed to split the funds in his IRA with his soon-to-be ex-wife. However, rather than waiting until the divorce was finalized, the man withdrew the funds from his IRA, placed them into a joint account and gave half of the money to his wife.

Because the man withdrew his funds early, he faced a 10 percent penalty on the entirety of the funds in the account. The man believed that he should only owe the penalty on the half that he kept after the IRA had been divided. However, because the division took place before the divorce was finalized and was not part of the divorce decree, the man was held liable for the penalty on all of the funds.

During divorce, it may prove vitally important to follow the correct order when it comes to carrying out certain actions. As this man's case shows, if he had waited until the court issued the proper orders, he may have avoided certain penalties. If New York residents hope to avoid such issues, they may want to speak with their legal counsel to ensure that they do not jump the gun when it comes to dividing property.

Source: financial-planning.com, "The wrong way to split an IRA in a divorce", Ed Slott, Aug. 31, 2017

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