-- Farias Family Law, P.C has released an article, “How is a Roth IRA Divided in Divorce.” It helps attorneys and parties to a divorce understand exactly how a Roth IRA is treated in divorce, including options for how it can be divided, and working with the unique tax issues involved. Here’s a link to the article: https://www.billfariaslaw.com/how-is-a-roth-ira-divided-in-divorce/
A Roth IRA is “property” like any other asset owned by either party. Therefore it’s subject to division in divorce. There are a number of factors the court must consider in determining how property, including Roth moneys should be divided, including how long the parties were married, their ages, health, contributions to the marriage, income and future earnings capacity, among other factors.
A common issue is whether and to what extent premarital Roth moneys should be subject to division. Without a prenuptial agreement, the court has significant discretion on this issue. Generally, the longer the marriage, the more likely it is that the premarital portions of the Roth accounts will be included for division
The article breaks down the different ways a Roth account can be divided. The parties can either divide the Roth account itself in addition to separately dividing other assets, such as equity in the home, bank accounts, other retirement accounts, and other property. Or they can instead offset the Roth with other assets: one party keeps all of the Roth moneys and compensates the other party with other assets.
The article also contains a thorough explanation of the tax pitfalls involved in negotiating division of Roth accounts in divorce. A Roth is unique and therefore cannot be treated like other assets. Essentially, a Roth account contains post-tax money whereas most other retirement vehicles have yet to be taxed. The different tax treatment must be considered when dividing Roth accounts, especially when they’re being used to offset other assets in property division.
In discussing the Roth article, Attorney Bill Farias said:
“Roth IRAs are unique and require special consideration in divorce. Not only are they retirement accounts that cannot be drawn from without penalty until age 59 1/2, but they also contain post-tax money, which has to be considered when offsetting Roths with other assets in property division.”
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Release ID: 493678