72(t) in divorce
Have an IRA owner with 2 IRAs, each with a 72(t) distribution ongoing.
Owner getting divorced and one of the IRAs is going to spouse.
Is this allowable and would it avoid the modification of the 72(t) stream? Or does the 72(t) overrule the divorce settlement and if this is turned over to the spouse the payments would have to continue based on the original setup or will it trigger penalty on all previous distributions?
Permalink Submitted by Alan Spross on Mon, 2007-11-26 20:16
While there were some lenient divorce related 72t rulings prior to RR 2002-62, there has not been any clarification since then, so this owner has nothing firm to go by. For this reason, it is recommended that divorce settlements not alter a 72t account unless there is no option.
This case may have one positive aspect to it if the owner has two independent 72t plans that are active rather than one plan using two IRA accounts as the 72t “universe”. With two independent plans, only the plan awarded to the spouse is at risk. Once the owner loses control of that account, he should not alter his other IRA to make up for distributions he can no longer take, or he might have two busted plans to contend with.
With respect to the awarded IRA, it is not clear whether the IRS will bust that plan if the amount distributed changes before the plan would terminate, or if the IRS will take the position that the transfer terminated the 72t on that particular account. Does the client have any influence over what the ex plans with respect to the awarded IRA? If not, he may only be able to appeal any IRS attempt to collect any penalty from him based on what the ex distributes from the awarded IRA.