As an experienced doctor, he knew how to heal and help patients get well. But Dr. John Kirkpatrick’s education and experience did not extend to how to transfer assets in an IRA in divorce. While it’s no crime not to know how to make those transfers, the doctor probably felt criminally naïve for failing to speak to a family law attorney experienced in property division dispute resolution and in helping clients distribute their assets and avoid legal problems.
As it turned out, the doctor wound up paying $140,000 for failing to pay the taxes when he withdrew funds from his IRA and transferred them to his ex-wife.
An article on a financial advice website points out that there are two ways to make tax-free IRA transfers in a divorce. The first way is pretty darned simple: just change the name of the IRA to the former spouse. That’s it.
The second way is slightly more complicated, but still falls into the “pretty darned simple” category: just transfer the IRA assets directly to an IRA owned by the ex.
Here’s what you can’t do (this was what the doctor did): take an IRA distribution and then move those funds to your ex-spouse’s checking account. Because if you do that, you will owe taxes just as the tax court ordered the doctor to pay.
If you face the possibility of divorce and you have an IRA, pension, stocks, business interests and so on, don’t assume that you know how to avoid penalties in transfers of assets. Talk to an experienced divorce lawyer. If the attorney thinks you need even more expertise on your side, you will get a recommendation for a financial adviser who can help you make the asset transfers in ways that protect all that you have worked to attain.