What happens to my IRA in a divorce?

An IRA divided in divorce can be transferred to your ex-spouse tax-free, but only if it's done correctly under the divorce or separation decree. Unlike 401(k)s, IRAs do NOT use a QDRO (qualified domestic relations order); instead the divorce agreement must specify the transfer, and the custodian moves the funds as a direct trustee-to-trustee transfer 'incident to divorce.' Done this way, neither spouse owes tax or the 10% penalty. If you instead withdraw cash and hand it over, you'll be taxed and penalized – a costly mistake. After the transfer, the receiving spouse owns the IRA outright with its original tax character (pre-tax stays pre-tax). Remember to update your IRA beneficiary designations after a divorce, since an ex-spouse may still be listed. WealthSerene's wealthserene.com/for/divorce guide walks through the broader financial steps.