Splitting Up an IRA After a Divorce

How does a QDRO (Qualified Domestic Relation Orders) impacts an established Series of Substantially Equal Periodic Payments (SOSEPP) – which, as we know, once established can only be changed one time?

Although not definitive, below are summaries of three Private Letter Rulings (PLRs) that seem to suggest first of all that making the distribution is not subject to the 10% penalty when a QDRO or divorce decree is involved, pursuant to the regulation in Code section 72(t)(4)(A)(ii)..

1) The transfer to a taxpayer’s spouse pursuant to a divorce decree of 50% of each of three separate IRAs owned by the taxpayer from which the taxpayer had already begun receiving “substantially equal periodic payments” did not result in a modification where the taxpayer’s spouse was two years younger and would commence receiving similar payments such that the total of periodic payments to the taxpayer and his spouse subsequent to the division would be substantially equal to the periodic payments received by the taxpayer prior to the division. PLR 9739044

2) In PLR 200027060, the IRS rules that a spouse after the divorce, that  received a portion of the client’s IRA accounts that were being used to fund a SEPP,  didn’t need to continue the payments since it was a transfer under Code section 408(d)(6). What about the client – did all the payments have to be continued out of what remained of his accounts?

2a) Later in PLR 200050046 (with similar facts) the IRS ruled in favor of the taxpayer. “The reduction in the annual distribution from IRA 1 to Taxpayer A beginning in calendar year 2001, prior to Taxpayer A’s attaining age 59 1/2 , and assuming Taxpayer A has not died and has not become permanently disabled, will not constitute a subsequent modification in his series of periodic payments, as the term “subsequent modification” is used in Code section 72(t)(4), and will not result in the imposition upon Taxpayer A of the 10 percent additional income tax imposed by Code section 72(t)(1) pursuant to Code section 72(t)(4)(A)(ii).

In other PLRs, it has further been ruled that the IRA owner may reduce the 72(t) payment amount by the same percentage as the reduction in the overall account by distribution to the former spouse.  This is the case for a QDRO granting a division of a qualified plan or a divorce decree granting a division of an IRA when the SOSEPP has already been set up.  In these cases, the former spouse who receives the proceeds from the IRA or qualified plan was not required to continue a 72(t) payment plan – the funds could be rolled over into an IRA, or left in the plan as is.

It is also important to note that the RMD (Required Minimum Distribution) for the year of the transfer is still dependent upon the previous end-of-year balance in the account – and could be adjusted for the following year if a favorable PLR is reached for the case.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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  • Jim – I’m currently in the process of settling a divorce with my wife. I have an IRA and have been taking 72(t) withdrawals for a year. I have two questions – We plan to move 25% of my IRA to my wife and create her an IRA. The questions are: 1) Will we be subject to the 10% penalty by doing this transfer, and 2) am I required to adjust my 72(t) plan as a result of the 25% reduction to my IRA? Thanks a bunch for your help – great website!

    • James –

      The PLRs mentioned above may provide some insight into how the IRS will handle your situation. PLRs are specific to the case involved and cannot be used as precedence. With that in mind, assuming that IRS treats your case similar to the others, there would not be a 10% penalty on the split of the account, and you would need to adjust your 72(t) payments to match the change to the account.

      For more definitive information you would need to pursue your own PLR with IRS. This can be quite costly –


      • Thanks for the quick reply. Just one clarification – has the IRS indicated in their PLRs or otherwise that a reduction to the 72(t) payments would be required? I’d rather keep the existing payments in place as it would have minimal impact to my IRA for the remaining years of the 72(t) payments.

  • Hello, I have a client that is under a SEEP Plan and has received his second distribution. The plan is a traditional IRA that was rolled over from his employer plan after he separated from his employer. The clients employer evidently did not record his QDRO from x wife before he separated and therefore not distributed to x wife. The clients attorney did not file the QDRO either.

    Clients x wife now has demanded her payment and now the client has to break his 72t in order to pay her. He has already paid her out of IRA My question is he required to pay the 10 penalty? His 2014 1099 is marked with code 1 box 7. It was not really my clients fault just a mess up I guess.

    I was wondering if there may be a PLR that we can refer to or how to handle this on his tax return. Any information would be helpful. Thanks.

    • I don’t know of a PLR that would work in this case – especially since he’s already paid her from his IRA. If he had gotten an additional court order requiring a “transfer incident to divorce” this probably would have saved him the 10% penalty and possibly it could have saved his SEPP.

      Unfortunately I think it’s too late for that now though, unless it’s been less than 60 days since the payment/disbursal and he has the means to replace the funds in his IRA to await such a court order.


  • Barry,

    It depends on how your QDRO is written. If the accounts are to be delivered to your wife as of a specific date/amount, then you should not have to take the RMDs from the account(s). If the date and amount has not been set, you should discuss with your attorney as to whether you need to (or should) take your distribution for 2012 prior to the handover of the account.

    Keep your QDRO documentation with your tax records in case the IRS comes back on you about a missed distribution, if that’s what winds up happening for you.


  • Hi Jim,

    I hope that you can help me. When we divorce this year (2012) my wife will receive 100% of two of my 401K accounts. Since the RMD for 2012 is based upon the amount as of 12/30/2011 (when they were in my name and we were married), who will be responsible for the RMD and taxes on these two accounts for 2012?


  • Quick question, please!
    How long is the whole process for the quadro to process the money from one account to the other? I got divorced 6 months ago and my lawyer keeps telling me its in progress… Seems weird to me that it’s taking so long.

  • Richard,

    Given that your IRA balance will be $75,000 less than what it was when you originally set up the 72t, it’s likely that you will need to adjust your withdrawals. If you used a balance calculation method, the amount of the withdrawals will just be reduced. If you used a set figure each year, then it’s possible that your withdrawals would deplete the account much more quickly than anticipated.

    As noted in the two cases (#2 & #3 above) the IRS has ruled favorably in situations like yours, if it turns out that a modification to the 72t plan is required.


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  • I have just recently divorced and my wife was awarded 75,000 dollars out of my IRA. I am already receiving 72t distributions from the account in order to survive. I am 58 years old and have a 14 year old daughter that is in my custody. I am trying to avoid negative tax implications due to the split. Will the IRS allow this?

  • So I am assuming if there is nothing in the decree there is no time limit on the quadro? We have been divorced about 9 mths and we are amicable but I have not done the Quadro jsut been busy etc is there a time limit i should be worried about?

  • Diane,

    It depends on how the decree is worded – you indicate that the ex-spouse has a 50% interest in the pension, so it is assumed that any distribution is 50% hers. If your brother cashes out, he will need to give half to her, presumably.

    I can’t imagine the decree indicating that she gets 50% of whatever is in the account on date x and whatever he does before that is disregarded, in other words.

    Hope this helps –


  • Rita –

    If the IRA (or a portion of it) is deemed to belong to your client (the wife) and she takes a distribution from that account (not a rollover) it could be subject to the 10% penalty to her unless the distribution meets on of the exceptions.

    If the husband has an obligation to pay to his ex-wife (not splitting up the IRA, some other obligation such as alimony) and he chooses to pay it from the proceeds of his IRA, then there would be 10% penalty applied to that distribution.

    If I haven’t covered all of your questions let me know.


  • My brother’s divorce has not been finalized. He does have a pension at his old job that his wife has a 50% interest in. There is “no” QDRO. If my brother cashes out the pension will he have any repercussions from the x-wife in terms of her 50% interest? Again, there is NO QDRO
    Thank you,

  • I have a client that recently got a divorce. She received a settlement agreement which was paid to her out of her husbands ira account. Is that money subject to the 10% penalty to her or her husband or both? She does not work so this is the only income that she has. So she will have to pull some of it out soon. Part of the payment is due from his ira account and some of the payment was for other things such as, alimony,and buying her out of the house, etc. Should he have paid the alimony and other etc. out of a different account instead of the ira account? It looks as though she was owed the entire amount from the ira account, which may make it all taxable, but if he paid the etc.s out of another account than for sure the other money that is not a part of the ira would not be subject to the 10% penalty, correct?

  • Jill –

    There are no specific rules for dealing with a situation like this, it’s up to the two parties to come to an agreement. In this case, an IRA is just another asset held by one party to the marriage.

    This is not to say that the ex has a case, I’m just telling you that there is no specific rule pertaining to IRAs in this situation.

    A QDRO pertains only to 401(k) accounts, not an IRA.

    Sorry I couldn’t be of more assistance…


  • My husband and his ex-wife had no statement in their original divorce agreement regarding the equalization of their IRA accounts. His account was invested in safer funds and made more than hers and now the issue has come up and needs to be settled. The divorce was finalized a year ago almost to the day, and she is claiming that she should get the difference based on today’s balances and not on the balances at the time the divorce was finalized. Everything I have researched, contradicts this. His accountant is not well versed in QDRO’s and could not answer this.

    Thank you,


  • As long as the retirement funds have not been addressed via previous decree, I don’t know of a time limit for splitting these accounts. Often in a divorce decree there will be a statement that indicates that the ex-spouse has no further to retirement plans other than what is dealt with specifically in the decree – or something like that. I’m guessing your decree didn’t include such a clause if you’re being caught by a division request at this stage.

    I’d suggest talking this over with your attorney to see what recourse you have.

    FYI – a QDRO does not typically have an impact on an IRA. These orders are specifically for Qualified Retirement Plans, such as a 401(k) or a 403(b).

    Hope things work out for you…


  • I live in Maine, devorced Dec. 2007, today July 19 2010 I received a QDRO for 50% of my IRA. My question, is there a time limit for a QDRO?

  • Unfortunately I don’t know of any way to force the ex-spouse to enact the QDRO. If the attorney is unable to come up with a way to accomplish this, I don’t know of any other remedy. And as far as I know there is no statute of limitations on a standard QDRO in order for your husband to consider QDRO’d portion of the account “abandoned”. Even upon her death her estate would still have claim to half of the account.


  • My husbands divorce to his first wife was final June of 2007. At that time it was ordered that a Quadro be completed to split his IRA taken into account gains and losses. At that time the IRA was worth about $200,000.00. The current value is about $84,000.00.

    The problem … The x-spouse refuses to apply for the quadro. My husband hired an attorney and submitted to his x-spouse all the paperwork neccessary to apply for her 50%. The investment company cannot complete the transfer until the x-spouse notifies them by phone or in writing.

    The x-spouse refuses to apply for the funds. Can the IRA be considered abandoned if never appied for?

    Thank you in advance for your time and patience.

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