Divorce and 72t

L1: Divorce and 72tI have a client who is going through a divorce. All indications are that the ex-spouse will get half of his IRA. He has until May of 2008 to complete his 72t.
What are the implications of this transaction?2007-03-26 06:20, By: David, IP: [207.67.33.65]

L2: Divorce and 72tHello David:
My advice — don”t allow this to happen. Rev. Ruling 2002-62 defines such a splitting of the IRA as “modification” of the SEPP plan even though the payments themselves might not or would not change. This would cause the 10% penalty to be retroactivelty applied to all distributions. Some suggestions:
1. Delay the actual divorce and/or the actual segregation of funds until after May, 2008.
2. Look to other marital assets to satisfy the balancing of assets between spouses.
3. Have your client pay maintenance to the other spouse for the next year & then split the IRA when the SEPP plan is over.
4. Advise your client to retain competent counsel so that two events occur: the counsel understands the problem; two, the counsel can explain the issue to the judge hearing the case.
TheBadger
wjstecker@wispertel.net

2007-03-26 16:33, By: TheBadger, IP: [72.42.67.133]

L2: Divorce and 72tIf the soon to be ex-spouse insists on splitting the IRA now, then have your client request damages for the following reasons:

Since the SEPP was running while they were married and she benefited from those distributions, then she will be responsible for half of the costs (penalties and interest) for busting the plan.
If your client is still younger than 59 _ at the time of the bust, then sue the ex-spouse for the costs and aggravation of having to set up a new SEPP Plan and run for a new 5-year period. Let’s assume your client turns 59 today, and this SEPP Plan will terminate after concluding the 5-year period in May, 2008, at his age 60. If he is forced to terminate the current plan, split the IRA, then start a new plan with the reduced IRA, then you will have some costs۝ associated with having to incur a new 5-year period until his age 64 or 65. I’m sure your client’s attorney can determine what these costs۝ would be.

Hope this helps.

Jim2007-03-27 07:46, By: Jim, IP: [24.252.195.14]