Hoosier Banker 31 Lisa Haberman Consultant, ERISA Ascensus ERISAcommunications @Ascensus.com Divorce is a difficult topic for many people to discuss, but the actual process of a divorce can be even more daunting for couples who have shared assets in a variety of investments, including assets earmarked for retirement. How do divorced couples navigate the process of dividing retirement assets held in individual retirement accounts (IRAs) and employer-sponsored retirement plans? Here are a few questions that help sort out the differences in distributions due to divorce. Can an ex-spouse roll over IRA assets awarded by a divorce decree into their own IRA? Yes, individuals who are awarded all or a portion of their former spouse’s IRA through a marital settlement or divorce decree may generally transfer or roll over the awarded assets into their own IRA. Financial organizations should not complete the rollover transaction until they receive a copy of the divorce decree (or other written instrument, such as a court-approved property disposition). If a distribution is given directly to the exspouse or legally separated spouse pursuant to a divorce decree or separation agreement, the financial organization should generate a corresponding Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in the recipient’s name. The distribution would then be eligible for rollover, provided all the rollover rules were met. Financial organizations that choose to allow rollovers in such situations – particularly a financial organization that was not a party to the distribution event and is not familiar with the court documentation – may wish to Differences in Distributions Due to Divorce obtain a written, signed statement or a hold harmless agreement acknowledging that the financial organization informed the individual of his or her options, and that the client will not blame the organization if the IRS disallows the transaction. A rollover would not be available to an ex-spouse who had only a verbal agreement to give all or a portion of the IRA to a former spouse: a written divorce decree or other legal document would need to authorize the transaction. Can an ex-spouse roll over retirement plan assets to their own 401(k) or other eligible retirement plan? Yes, an ex-spouse (i.e., an alternate payee) may roll over assets from the former spouse’s employer plan, through the instrument known as a qualified domestic relations order (QDRO). First, the plan administrator must receive a domestic relations order (DRO) created by the applicable court. The plan administrator will then determine if the terms set out in the DRO meet the criteria needed to be a QDRO and, if they do, will authorize the rollover to the alternate payee’s employer retirement plan or IRA. The timing of the rollover will depend on the terms of the former spouse’s retirement plan. The plan may provide for a distributable event for the alternate payee in divorce or legal separation circumstances. If this option is not permitted by the plan, the alternate payee will not be allowed to distribute and roll over the assets until the former spouse attains a distributable event under the plan (including age 59½, normal retirement age, disability, death, etc.). Ascensus is an associate member of the Indiana Bankers Association. (Continued on page 53.) HUMAN RESOURCES
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