Divorces can divide many kinds of marital property, including retirement accounts. If you are relying on an annuity as part of your retirement plan, you should know how to split it between you and your spouse so you do not lose money in unnecessary costs.
Kiplinger describes some facts about dividing an annuity which may help you determine a course of action that avoids taxes and penalty fees.
Early withdrawals may incur costs
While it is possible to withdraw annuity money to give to a spouse, you may have to pay taxes and surrender fees. This is because annuities generally have surrender periods of several years. An annuity owner cannot make withdrawals during this time without having to pay a surrender charge.
Splitting an annuity into two is possible
To avoid tax expenses, one option is to withdraw from the current contract and divert the annuity funds into two new accounts. The IRS does not impose taxes on this kind of transfer. You and your spouse will take ownership of your respective accounts through new contracts.
Transfer the annuity to a new owner
An alternative to dividing an annuity is to give the entire account to your spouse by abolishing the current contract and starting a new one. This could happen if you negotiate for more property and assets in exchange for transferring the full annuity to your spouse.
If you own an annuity in an IRA, you might be able to roll a share of the funds into a new IRA for your spouse. This is another way to avoid some taxes. Despite the complications involved in dividing retirement accounts, you might find options to help you keep as much retirement money as possible.