How is a Roth IRA Divided in Divorce?


You’re getting ready for divorce but are worried about how your Roth will be divided. This can be an especially difficult issue to face when you were the one doing most of the saving.

A Roth IRA, like any other asset owned by the parties, is subject to property division in divorce. If and how exactly the account is divided depends on the facts and circumstances.

In determining how property should be divided in divorce, the court takes into account the length of the marriage, the parties’ respective contributions to the marriage—both economic and noneconomic, such as child-rearing and housekeeping—the ages and health of the parties, their income, and their future economic prospects, among other factors.

Generally, the longer the marriage and the more equal the parties’ respective contributions were to the marriage, the more likely it is that the property will be divided approximately equally, including the Roth account.

The court also has discretion on whether to include for division any Roth money earned before the marriage. Absent a prenuptial agreement, the court can include all premarital Roth money for division. However, as a practical matter, the shorter the marriage, the more likely the court will exclude the premarital portion.

How exactly the Roth is divided is subject to negotiations, and absent agreement, a judge would decide. The parties may divide the actual Roth account or they may instead offset its value with other assets. For example, the parties may agree that the account holder will keep the Roth, but the other party will receive a greater portion of the equity in the marital home.

It’s important to consider the tax consequences of a Roth account compared to other retirement accounts. Unlike most other retirement vehicles, the Roth is non-taxable at withdrawal. This tax consideration is especially important if the Roth is being used as an offset for other property.

For example, $50,000 of Roth money is not equal to $50,000 of 401k money—because the Roth money has already been taxed, whereas the 401k money will be taxed upon withdrawal. Therefore, if the parties want to use Roth money in an offset, they should consider the tax consequences to ensure the assets are divided fairly.

Also, when comparing a Roth to cash or to equity in the home, remember that you generally can’t make withdrawals on the account before the age of 59 1/2.

The treatment of a Roth account in divorce is unique. Like any other retirement account, it’s subject to property division in divorce. However, if the parties are using it to offset other property for division, its unique tax treatment must be considered in order to ensure fair division.