Property division involving inherited IRAs may cause confusion

Posted in Property Division on July 19, 2018

Dissolving a marriage is never easy emotionally or financially. However, one area of divorce that has proved to be especially difficult recently is the distribution of an inherited Individual Retirement Account (IRA). Here is a glimpse at why property division involving inherited IRAs can be tricky to understand in California and elsewhere.

IRAs in general are often sources of much contention during divorce because they are usually major assets. As a result, they naturally become divorce proceeding bargaining chips. However, the inherited versions of these retirement accounts are sparking a whole slew of new questions regarding whether they should even be divided during a divorce.

An inherited IRA can be in one person’s name alone, so it is generally viewed as separate property. However, couples who are married usually use their joint earnings to contribute to the inherited IRA of one of the spouses. This immediately makes the inherited IRA a marital asset — or community property. In other words, it must be split 50/50 during a divorce proceeding in California, which is a community property state.

The easiest way of dealing with property division during divorce is for both parties to reach a mutually satisfactory settlement agreement. This can be done through divorce negotiation or mediation, which are alternatives to traditional divorce litigation. However, sometimes this is not possible, in which case the spouses have no choice but to proceed to divorce trial to have a judge determine how their property should be split. In either situation, an attorney in California can provide a spouse with the guidance necessary to pursue the most personally favorable outcome given the circumstances surrounding the marital dissolution.