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What You Need to Know About IRAs and Your Divorce

There are a lot of things that you might be sure of right now, but one thing you will never be able to prepare for what to do during or after a divorce. It’s not only the emotional toll that would weigh on you after deciding to go through divorce – you have to think about your children, your properties and assets, how to tell your families, etc. There are so many things that you have to do, all while with a heavy heart. You can’t expect everything to just fall into place, you have to work through it all to get where you want to be. 


Let’s focus on the part where you divide properties and assets, or to be more specific, the IRAs. Individual Retirement Accounts (IRAs) are investments to prepare you for the future. It can be classified into two: 

  1. Traditional IRA – wherein you deposit a part of your income into the plan tax-free up until the time you will be encashing it in the future. Only then would the future tax rate be subtracted from your total investments.
  2. ROTH IRA – on the other hand, allows your investments to be taxed annually before being settled in your account so that when you encash it in the future, there would no longer be taxations because your money already went through it before.

If you anticipate that tax rates will be higher in the future, then it is better to opt for a ROTH IRA than a traditional one.

IRAs and Divorce

If you invested in IRAs during your marriage, it would most likely fall on the category of shared assets, which would then be divided equally in court. However, if only one spouse has an IRA, then the transfer of investment would be a little tricky. You cannot choose to take a check instead of a direct rollover, because that may trigger a taxable event even when you were just simply depositing the check into a new account. Not following the proper procedure advised by your lawyer or mediator in handling the transfer of funds might result in penalties as much as 10% or more. 

There are countless things that may be processed in different ways, and it would be a huge hassle to do these things on your own, especially considering the emotional weight that the divorce has brought upon you. But no matter what, do not hesitate to ask for help, specifically with regards to the division of properties, assets, and IRAs included.

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Mr. Hutton is a Divorce and Custody Lawyer based out of Round Rock, TX. His background is with child psychology at Arizona State University where he received a B.S. in 2006, and he continued this by working with the Children’s Right’s Clinic at the University of Texas School of Law where he received his J.D. in 2009. Throughout his practice, he has been a strong proponent of utilizing modern technology to improve his practice and the representation of his clients. He currently is the technology chair of CAFA of Travis County and is committed to improving and modernizing the practice of law in Texas. If you have any questions you can contact him at

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