Ending a marriage often means splitting the assets. Some property may be easier to divide than others, and when it comes to addressing retirement accounts, more steps may be necessary in order to avoid possible taxes and fees. In particular, Utah residents going through divorce may want to pay close attention to how the division of IRA funds takes place.
The manner in which the money is transferred plays a significant role in whether taxes will be applied. The correct way to divide these funds involves following rules set forth in the Internal Revenue Code. The IRC indicates that the transfer will not face taxation under these circumstances as long as the a formal and legal divorce or separation instrument is used. This means that a divorce decree or legal separation agreement could work as this necessary instrument.
Individuals may also want to focus on the legality of their instrument. For instance, a couple may come to the decision to separate and create their own separation terms. However, if one person takes funds out of an IRA and transfers it to the other individual, taxes could still be applied to the original owner. The reason for this taxation is that no formal and legal separation order was involved in the process.
Dealing with the division of IRA funds and other retirement funds can be complicated. Unfortunately, a simple misstep could easily result in one party facing taxation that could have been avoidable if the correct steps had been taken. Therefore, it may benefit Utah residents going through divorce to consult with knowledgeable professionals who understand property division law as well as the correct ways to divide complex property.