Q: Living apart, before DOS, my 52 y/o wife took a $15k early distribution from her IRA without telling me.
I told her she had paid a penalty for do so before 59½. To save her that again, since I was over 59½, I offered to lend her $40k ($20k + $20k; secured by two, separate Promissory Notes) from my IRA, as advances on her ½ share of our home when we sold it (we were waiting for the market to improve, not because we were planning a divorce). The Notes attached 10% interest charges if she did not repay the loans by one year after the house sale closed, which it did over a year ago. She has not repaid the loans.
Now in divorce proceedings, after DOS, her attorney asserts they were not loans (though she (atty) referred to them as such in a letter), but were distributions of community property and that my wife only owes me $20k. I assert I made no claim to wife's $15k withdrawal from her IRA (and still don’t) and that she owes me the $40k I withdrew from my IRA for her benefit, plus the $4k ($2k + $2k) interest penalties.
Your opinion, kind Sir or Madam? Thank you.
A: It's good that you drafted a promissory note because it shows the intent of the parties. Did you both sign this document? What I'm finding confusing however, is the time line. If the withdrawal and the loan to her were made before the date of separation, you are not necessarily entitled to reimbursement. These transactions conducted during the marriage and before a date of separation are community transactions. If the withdrawals were for the benefit of the community there is no entitlement to reimbursement.
A: Hi there. This sounds like a very fact-intensive question. You should hire an attorney to help you with this process because you have a lot at stake. An attorney will review the language in the promissory note as well as the money earned that contributed to the IRA. You should also have the attorney explain how part or all of the IRA can be considered community property and separate property. Just because it was in a separate account with your name on it and not hers doesn't mean its automatically your separate property. If a portion of the IRA was earned during the marriage then it may very well be considered community property.
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