Divorce – what happens to 72t

L1: Divorce – what happens to 72tFew questions regarding divorce and impact on 72t IRA
about 5 years away from 59.5 and wife 1.5 years older
If IRA has to be split with wife
a) does this bust 72t
b) doesfull distribution continuewith distribution now split between teh 2 accounts
Any insight greatly appreciated
2006-06-30 09:57, By: jacko, IP: [68.82.191.120]

L2: Divorce – what happens to 72tA lot depends on your divorce settlementand what your ex is willing to accept.
If you have a large IRA, it”s unlikely your wife is willing to wait a few years until you satisfy your 72t obligation to get her cut, regardless of your monthly SEPP payment. Withdrawing any monies beyond your annual distribution amount will bust the 72t.
It might be just as easy to bust the plan, give her her due, and move on…especially since you haven”t been in the planthat long. Payment of any penalties/taxes could become part of your divorce agreement, but as far as the IRS is concerned, the onus is on you. Good luck.
“Love is grand, but divorce is a few hundred grand.”
Anonymous

2006-06-30 11:00, By: francis3, IP: [151.203.196.3]

L2: Divorce – what happens to 72tRefer to Min Distribution, FAQs above on this site. Scroll down for some PLRs that address divorce issues. One of these PLRs did allow the 72t to continue for each spouse”s partitioned IRA account, which seems more likely than to allow greater flexibility to each party. The problem now is the expense of a PLR, so if there is any way to negotiate around the 72t IRAand leave the plan intact, that would be the best solution. Of course, in many cases the assets do not allow that flexibility.2006-06-30 14:50, By: Alan S., IP: [24.116.165.157]

L2: Divorce – what happens to 72tHello jacko:
Back in the late 1990”s there were 3/4 PLRs that tackled the issue of divorce and SEPP plans. All provided for logical & equitable “step-in-stride” solutions. However, with the advent of Rev. Rule 2002-62; I am now of the opinion that these PLRs are now mute. Said another way, I think a transfer of a portion of the IRA from husband to wife (or vice versa) constitutes a modification resulting in the application of the 10% surtax plus interest.
What we have here is a IRC conflict between IRC 72(t)(2) & (4) versus IRC 1041 “Qualified Domestic Relations Orders” & IRC 414(p) “non-taxable transfers incident to divorce”. In the absence of co-ordinating language I think IRC 72(t)(4) prevails and a modification occurs. That”s not necessarily the logical answer but I do think it is the law of the land.
With all that said, if your question is hypothetical then there is no need for further work; conversely, if your question is real / practical; I would advise that you get very competent and expert help immediately. Here is why. Judges are modestly to very familiar with the tax consequences of various asset splitting techniques; in particular, judges are very familiar with IRC 1041 & 414(p) as available techniques to move assets betwen spouses in a non-taxable manner. Having seen this situation recently, I suspect that there are no judges sufficiently sophisticated enough to understand the applicability of IRC 72(t)(4) in the divorce situation & at least one of the spouses needs an expert to explain it to the judge; otherwise the judge is likely to make a decision in the ordinary course of his ruling that creates a material to disasterous tax liability for one of the spouses in an unintentional manner.
In summary, the best solution is, if possible, to leave the SEPP IRA alone and satisfy the division of assets betwen spouses using other assets. After that, the other solutions get uglier and more expensive.
TheBadger
wjstecker@wispertel.net

2006-07-01 08:50, By: TheBadger, IP: [66.109.211.254]

L2: Divorce – what happens to 72tThanks for comments and advice- was more hypotetical at this point andwanted to get opinions – help me tosee how bad $ wise it could be.
2006-07-02 18:25, By: jacko, IP: [68.82.191.120]