Attorney Genia Coleman Lee, with the SWLA Law Center, answers the following questions:
Does an inherited IRA become community property in the event of a divorce?
If the inherited IRA is rolled over into an account in the name of the heir, and his children are named as beneficiaries, does the wife have to agree?

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When it comes to divorce, one of the most complicated issues that couples face is the division of property. This can be particularly challenging if a couple owns different types of assets, such as an inherited individual retirement account (IRA). This raises the question: does an inherited IRA become community property in the event of a divorce?

The answer to this question is not simple and depends on the state’s laws where you live. In community property states, any property or assets acquired during marriage are considered community property and are subject to division upon divorce. This means that any assets, including inherited IRAs, acquired during the marriage are subject to division between spouses.

However, in non-community property states, inheritance is generally considered separate property and may not be divided upon divorce by a court. This means that an inherited IRA would not automatically become community property and may be awarded to the inheriting spouse.

It’s important to note that even in non-community property states, inherited IRAs may still be subject to division upon divorce if the inheriting spouse commingles the assets with other marital property. For example, if the inheriting spouse deposits inherited IRA funds into a joint bank account, then the account may be considered marital property.

It’s also worth noting that the type of IRA inherited can also impact how it is treated in a divorce. Traditional IRAs are subject to income taxes upon withdrawal, while Roth IRAs are not. This may impact how the assets are divided in a divorce settlement.

In conclusion, whether an inherited IRA becomes community property in the event of divorce is a complex issue and largely depends on the state’s laws where you live. If you are considering a divorce and have inherited assets, it’s important to seek the advice of a qualified family law attorney who can guide you through the legal process and help you understand your rights and options.