How to Divide an IRA in Divorce

The single most expensive mistake in IRA division is the one most people make instinctively: the IRA owner takes a withdrawal and writes the former spouse a check. That treats the IRA as cash. The IRS treats the entire withdrawn amount as taxable income to the owner, plus potentially a 10% early-withdrawal penalty. The transfer has to move directly between custodians to qualify for tax-free treatment.

Why an IRA is not divided by QDRO

A QDRO is a court order that divides a retirement plan governed by ERISA. The plan administrator processes the QDRO against the plan's specific rules. An IRA is not an ERISA plan; it is an individual account at a custodian. There is no plan administrator, no employer, and no ERISA process. The IRA custodian is a financial institution acting on the account holder's instructions.

The correct mechanism is a transfer incident to divorce under IRC Section 408(d)(6), which allows an IRA to be transferred between spouses without triggering income tax or the 10% early-withdrawal penalty, provided two conditions are met:

1. There is a court order or written instrument incident to the divorce directing the transfer.
2. The transfer happens directly between custodians (or as an internal transfer at the same custodian).

What the IRA custodian needs

Custodian procedures vary, but the standard requirements are:

• A certified copy of the divorce decree or settlement agreement directing the transfer.
• The custodian's own transfer-incident-to-divorce form (most custodians have one; ask).
• Identification of the receiving IRA account at the same custodian or a different custodian.
• A tax-withholding election from the receiving spouse where required.
• Sometimes a separate court order even when the decree clearly directs the transfer. Fidelity and Schwab in particular sometimes require this; Vanguard typically does not. Confirm with the custodian.

The mistake that costs the most

The fix is always the same: the transfer moves directly from custodian to custodian, or as an internal book-entry move within the same custodian. The receiving spouse opens an IRA in their own name (or uses an existing one), the IRA owner signs the custodian's transfer form referencing the divorce decree, and the custodian moves the funds. No tax. No penalty.

Same custodian vs different custodian

The simplest case is when both spouses already have IRAs at the same custodian. The transfer is a book-entry move, often processed within a week. The custodian uses an internal transfer form; the funds never leave the institution.

When the receiving spouse uses a different custodian, the transfer follows the standard ACAT (Automated Customer Account Transfer Service) procedures. The receiving custodian initiates the transfer; the sending custodian releases the funds. Timeline is typically two to four weeks. The same IRC 408(d)(6) treatment applies.

Why IRAs usually divide on the transfer-date value

IRC Section 408(d)(6) defines the transfer in terms of the interest set out in the divorce instrument, and the Code technically permits a value tied to an earlier date. As a practical matter, most custodians do not offer historical-valuation services. The result is that the value at the time of transfer is the working norm for most IRA divisions. Whether a particular custodian will honor an earlier valuation date is fact-specific and is confirmed with the custodian before the language is finalized.

This is also one reason IRA language gets rejected. Vague phrasing, embedded math, or terms imported from pension practice (a "marital portion" formula, "including gains and losses") can prompt a custodian to demand a full court order it would not otherwise have required. A clean IRA division generally states a specific dollar amount or a percentage that the custodian can apply on its own terms.

Traditional vs Roth IRA

The transfer mechanism is the same. The Roth character (after-tax contributions, qualified-distribution rules) follows the transferred portion. The receiving spouse's Roth IRA inherits the basis and the qualified-distribution clock applicable to the transferred funds.

Roth and pre-tax accounts carry different tax characteristics, which is why the choice between dividing accounts directly and equalizing them across account types affects tax treatment. A Roth IRA divided directly preserves its tax-free treatment and the receiving spouse's proportionate share of basis; folding a Roth into an equalization against pre-tax accounts can change that. How those differences are handled in a given division is generally addressed with counsel and a tax professional. Mixing Traditional and Roth in a single transfer is generally not done; if both Traditional and Roth IRAs are being divided, each is handled with its own transfer form.

The SIMPLE IRA two-year rule

SIMPLE IRAs carry a two-year rule that can affect how a transfer is taxed depending on when it occurs relative to the first contribution to the account. Inside that window, moving SIMPLE IRA funds to a different IRA type can carry a penalty; after the window, ordinary IRA rules generally apply. There are also "transfer-only" SIMPLE IRAs that accept incoming dollars without new salary-deferral contributions.

When an IRA is already in payout (RMDs)

If an IRA owner has reached the age at which required minimum distributions (RMDs) have begun, that status matters and is worth flagging early. An account already in payout behaves differently from one still accumulating, and the RMD status can affect how a division is timed and documented. The RMD framework is general tax law, not a TOVA position; the practical point for a divorce file is simply that an in-payout IRA should be identified at the start, not discovered late. For more on how required distributions interact with a division, see the related RMD in divorce guide.

The 60-day rollover trap (when it applies)

The 60-day rollover trap does not apply to a direct transfer between custodians. It can apply if the IRA owner mistakenly takes a distribution and then tries to roll it over to the former spouse's IRA within 60 days. That sequence is risky because:

• The custodian may withhold 10% for federal taxes from the distribution.
• The IRS treats this as the owner's distribution, not the former spouse's, because it ran through the owner's hands.
• The IRC 408(d)(6) treatment requires the transfer to flow from the marriage, not from a personal withdrawal.

Always use the custodian's direct-transfer process, not a withdraw-then-roll sequence.

Forensic tracing of an IRA

IRAs frequently hold:

• Pre-marriage funds (Traditional or Roth contributions before the marriage).
• Rollovers from prior employer plans during the marriage.
• Post-cutoff contributions if the IRA owner kept contributing after the agreement's valuation date.
• Mixed account history from multiple sources.

The transfer mechanism is one question; the marital and non-marital separation is a different question. The marital and non-marital separation is documented from the custodian's records, and the transfer paperwork reflects only the amount each party is actually entitled to under the agreement. See the forensic tracing guide.

Cross-border IRA divisions

When the receiving spouse is a non-resident alien, additional issues come into play:

• U.S. tax-withholding treatment for non-resident-alien IRA distributions.
• Some custodians require additional documentation (W-8BEN, foreign tax-residency forms).
• A foreign decree may need to be authenticated and registered in a U.S. court before the custodian will act.

See the cross-border retirement division guide for the full path.

What TOVA does not do

• We do not provide legal advice. Counsel makes the legal calls.
• We do not provide tax advice. The client's CPA handles tax.
• We do not make strategic litigation decisions. We document what the records show and what the plan can administer.
• We do not move funds. The IRA custodian executes the transfer; we draft the order or letter that authorizes it.

What we need to start an IRA case

• The most recent IRA statement (every IRA, if there are multiple).
• The IRA custodian name and account number.
• The settlement agreement or proposed language addressing the IRA.
• The Date of Marriage and the cutoff date.
• Any rollover history known to the parties.

For related context, see the FAQ on which court order divides which plan type, the forensic tracing guide, and the pricing page ($700 flat project fee for the transfer-incident order on a standard IRA).