What Happens To My IRA If I Get An Oregon Divorce?
An Individual Retirement Account (IRA) is a tax-advantaged saving plan that provides varying benefits to those saving for their retirement. There are several types of IRA accounts, and each is generally handled the same way by Oregon courts. The most common types of IRAs are Traditional IRAs and Roth IRAs; however, there are many other less common IRAs, including:
• SEP IRAs
• SIMPLE IRAs
• Rollover IRAs
• Spousal IRAs
• Nondeductible IRAs
• Inherited IRAs
• Education IRAs
Depending on the type of IRA, an account holder can either contribute pre-tax money to the account and be taxed on all account gains (Individual IRA) or contribute post-tax money into the account and enjoy tax-free gains (Roth IRA). However, one of the main restrictions of an IRA is that withdrawals are not generally permitted until an account holder is 59 ½ years old. Early withdrawals are subject to penalties.
Oregon courts use the equitable distribution model when dividing a couple’s assets during a divorce. Thus, the assets in an Oregon divorce are not always divided 50/50. Judges have quite a bit of discretion when dividing an IRA during a divorce; however, courts must consider the direct and indirect contribution of a spouse as a homemaker. If one spouse was making the home and raising the couple’s children while other spouse was earning income and depositing it into an IRA, there would be a very significant indirect contribution by the homemaker. Unlike many other states, Oregon law does not necessarily protect a spouse’s separate or premarital assets in a divorce proceeding. Thus, even an IRA that was opened before the marriage may be subject to division. It is especially common for courts to divide the amount that a premarital IRA account grew during the marriage, although there is a distinction between “active” growth caused by marital contributions or investment decisions and “passive” growth caused by simple market forces.
One of the major concerns involved in the division of an IRA is avoiding the early withdrawal penalties. Like 401(k) plans, IRAs have strict withdrawal requirements. However, unlike 401(k) plans, IRAs can usually not be included in a Qualified Domestic Relations Order (QDRO), which permits the account holder to name an alternate payee on a retirement account.
The general rule is that an IRA cannot be transferred during the accountholder’s lifetime. Thus, one spouse cannot transfer money out of an IRA or withdraw money from an IRA to give to a former spouse without incurring a penalty. However, IRA funds can be transferred tax-free from one spouse to the other if the transfer is part of a court-approved divorce decree or legal separation agreement. Without documentation that the account holder and the person to whom the funds were transferred to are no longer married, the account holder will be subject to penalties when the transfer occurs. Thus, to avoid an early withdrawal penalty, those with IRA accounts who are going through a divorce or considering a divorce should consult with a dedicated Oregon divorce attorney.