Do We Pay Taxes if We Divorce and Split the IRA?
Divorce turns a marriage into a business transaction.
That’s an unfortunate but true statement.
A big part of that business transaction is splitting assets — including retirement assets.
One of the most common type of retirement asset we deal with in Utah divorces is money in the IRA. Almost no one has a pension anymore, so retirement is usually an IRA or a 401(k).
When you split a IRA at divorce, this question always comes up: do we pay taxes if we split the IRA?
The answer is no, and here’s why: when you split the IRA, you’re not selling any of the stuff inside the IRA.
All you’re doing is moving money around.
What happens is the IRA company takes money inside one spouse’s IRA, creates a new account for the other spouse, and moves a percentage of the money in to the new IRA.
So, when you split the IRA during Utah divorces, you end up with two IRAs instead of one, but no taxes are paid in the process.
Now, keep in mind that if someone cashes out the stuff from the IRA after the money’s been split, that’s a taxable event. You will pay taxes on that sale.
But, those taxes will be paid by the spouse who cashed out, so if you don’t cash anything out of your personal IRA, you won’t pay any taxes.
