People in San Jose who get a divorce and who need to split a defined benefit pension plan or a qualified retirement plan need a document known as a qualified domestic relations order. If they have retirement savings in an IRA, they simply need a copy of the divorce decree to have the account divided.
However, some people take withdrawals from their IRA before they reach the age of 59 1/2. Normally, this would incur a 10% penalty, but there are certain situations in which it is permitted without a penalty as long as no further modifications to the account are made. The IRS does not specifically address whether dividing the account because of a divorce counts as a modification, but as its regulations describe a modification, it would seem as though it does.
Some taxpayers have sought further clarification with a private letter ruling. The IRS publishes their responses, but they are only supposed to apply to the individual they are replying to. However, consistency in response can often be a guideline as to how others should approach the question. This can be useful since a PLR can cost more than $10,000. Some people also seek to reduce the distribution amount. It may be helpful to discuss this situation with a financial or legal professional.
Retirement accounts are not the only type of property that could present complications in a divorce. Business ownership is another. If a business owner has partners, there may already be a plan in place in case of a divorce. However, if the person is the sole owner or if the two own the business together, it might be necessary for one to buy out the other or to sell the business altogether. Both of these may delay the divorce.