Spousal Divorce Inquiry

Hello,

One of my client’s went through a divorce last year. The ex-spouse was awarded a portion of the client’s IRA. The ex-spouse was non-responsive and the client, although I did discouraged doing this, felt compelled to comply with the divorce transfer, so they requested a taxable distribution out of their IRA payable to the ex-spouse.

This should have been processed as a non-reportable transfer per the IRS. Is there anything that can be recommended to the client to attempt to fix this? Any feedback would be greatly appreciated.

Thank you.



This is a very costly error and will result in tax and penalty (if under 59.5) for this distribution. If within  60 days of the distribution the only partial cure is to roll back the distribution using client’s other funds if he has them and has a 60 day rollover available. The other half of the problem is not curable. The ex will not be able to deposit the check into their own IRA because this can only be done by direct transfer. The ex will then have lost tax deferral on the amount of the check and if they deposit it anyway as a rollover contribution for which they are ineligible they will have made an excess IRA contribution which must be corrected or an annual 6% excise tax will apply.  Ex could take legal action against client for failing to adhere to the decree. Where were the lawyers on this?

Add new comment

Log in or register to post comments