IRA Benefits and Divorce

In the event of a divorce, the court has the authority to divide or allocate all the property and assets belonging to both parties. This includes pension plans and other retirement assets.

Division of IRA Accounts

Individual retirement accounts (IRAs) may fall under a different category. The courts cannot divide property that does not exist at the time of the divorce such has the expectation of future assets that may never in fact come into existence.

Some courts conclude that it is a mere expectancy, that a divorced spouse will be the beneficiary. They do not consider that income generated by unexpected death of the IRA holder as property asset. The unknown possibility of funds cannot be awarded in a settlement.

An IRA is a kind of trust or custodial account. It is negotiated between an individual and bank or brokerage firm that manages the account. A person appoints beneficiaries for the account in the event of death that are of his or her own choosing. It is common to name as well as children to receive these benefits.

Recipient of IRA Benefits

During the division of assets during divorce, the courts will award the IRA to one of the spouses. However there is no legal or contractual obligation to have a spouse as the beneficiary. It is important that the owner of the IRA change the beneficiaries and remove the former spouse as this can be an area of conflict.

Most courts are involved with cases where the owner has failed to remove the ex-spouse from the IRA and this may be disputed by present spouses or the owner's children.

An Ex as Beneficiary

Divorce, in itself, does not cancel a person's right to be a beneficiary of an IRA under current laws, in most jurisdictions. IRAs are viewed as outside the realm of the laws and rules, regarding wills and these will not apply to settle any disputes. In some cases, the court will award the proceeds to the ex-spouse who was the official beneficiary. In other cases, the court has decided that the divorce was enough to sever the ex-spouse's right to this money. In these cases, the funds may go to a current spouse or children.

The laws and rules that govern insurance polices differ from those about IRAs. However, many times both types of assets may be in dispute. Courts may use the decision reached about the insurance policy as a guideline. Further, the courts may look to other decisions in their jurisdictions to resolve the dispute over who is the proper beneficiary.


Protecting Your IRA in Divorce

Clearly, the courts are not uniform in their decisions about the rights of a named beneficiary. It is important that a person change the beneficiaries on an IRA, following a divorce if it is no longer desired have the ex in this role. If the individual keeps in contact with the financial institution and ensures that all the paper work is in order, future disputes may be avoided.