As the time for certain aspects of the new tax law to go into effect approaches, new financial arrangements for divorce are being considered in New Jersey. Since the federal tax law regarding alimony is changing, people navigating divorce proceedings are in search of alternative property division options. One such arrangement involves IRAs. A question was recently posed as to whether it is possible to split an inherited IRA.
IRAs themselves have played a part in divorce for some time now. Inherited IRAs are being looked at as a possible gap closer in light of the new alimony law. With the loss of the alimony tax advantage, the fear among some people is that alimony awards will shrink. Inherited IRAs provide a way to fill that gap. Neither the status nor the distribution schedule of the inherited account would change, only the beneficiary’s name would be changed.
An instance where this might be a good option would be if a spouse inherited a large IRA and wanted to use all or part of it to satisfy a property split in a divorce settlement. There is some question as to whether an inherited IRA is considered marital property. However, the owner of the property has the right to allocate the property. If funds are withdrawn from the inherited IRA, there may be tax implications to be considered.
A person in New Jersey who is considering divorce and is concerned about the implications on property division of the new tax law may want to seek the advice and counsel of an experienced family law attorney. A knowledgeable lawyer can look at the overall financial situation of his or her client. The lawyer can then advise one on what are the best options to pursue and help to achieve a favorable result.