8.11 Transfer of Traditional IRA to Spouse at Divorce

If you receive your former spouse’s IRA pursuant to a divorce decree or written instrument incident to the decree, the transfer is not taxable to either of you. From the date of transfer the account is treated as your IRA. If you are legally separated, a transfer of your spouse’s IRA to you is tax free if made under a decree of separate maintenance or written instrument incident to the decree. The transferred account is then treated as your IRA.

How to make a divorce-related transfer.

If you are required to transfer IRA assets to your spouse or former spouse by a decree of divorce or separate maintenance, or a written instrument incident to such a decree, use one of these transfer methods to avoid being taxed on the transfer: (1) change the name on the IRA from your name to the name of your spouse or former spouse, or (2) direct your IRA trustee to transfer the IRA assets directly to the trustee of a new or existing IRA in the name of your spouse or former spouse.

If you simply withdraw money from your IRA and pay it to your spouse, you will be treated as having received a taxable distribution from your IRA. If you are under age 59½, you will be subject to the 10% early distribution penalty as well as regular tax on the withdrawal.

QDRO transfer of employer plan benefits to your IRA.

If you receive your share of your spouse’s or former spouse’s benefits from an employer plan under a qualified domestic relations order (QDRO), you can make a tax-free rollover to a traditional IRA or another eligible retirement plan so long as it would have been eligible for rollover had your spouse received it (7.12). If you roll over only part of a qualifying QDRO distribution, you figure the tax on the retained portion by taking into account a prorated share of your former spouse’s cost investment.