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A woman going through divorce discovered that her husband had quietly moved $340,000 from a rollover IRA into a self-directed structure years earlier, using it to purchase two rental properties held inside an IRA-owned LLC. Because the properties were titled to the LLC rather than to him personally, she initially struggled to get a clear picture of what the retirement account was actually worth. Her attorney eventually confirmed that the real estate was fully part of the marital retirement assets, regardless of how the ownership was structured.
Why The Structure Made The Assets Harder To See
A self-directed IRA with checkbook control works by having the IRA own a single-member LLC, with the account holder serving as manager. That LLC then holds title to whatever the IRA invests in, whether that is real estate, a private loan, or another alternative asset.
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On paper, the properties were owned by an LLC rather than by the IRA custodian directly, which is exactly what checkbook control is designed to do. That structure did not shield the assets from the divorce, but it did mean her attorney had to specifically request LLC operating agreements and property records to get a full accounting, rather than a simple account statement showing a cash balance.
What Divorce Attorneys Should Know To Ask For
Standard IRA statements from a brokerage show a balance and a list of holdings. A self-directed IRA holding real estate through an LLC instead requires the custodian’s account statement, the LLC’s operating agreement, and current valuations of the underlying property, since the LLC itself does not trade on any public exchange.
Her attorney ultimately had to request a formal valuation of both rental properties as of the relevant date, since the custodian’s own statement only reflected the last self-reported value the account holder had submitted, as required under IRS reporting rules for self-directed accounts that require custodians to file Form 5498 based on year-end fair market value.
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Was This An Attempt To Hide Assets?
Her husband maintains he never disclosed the properties simply because he did not think to mention an account he considered separate from their day-to-day finances, not because he was trying to conceal anything. Whether that explanation holds up is now a matter for the court, but the properties themselves were never actually hidden from a legal disclosure standpoint, since they were reported annually to the IRS through the account’s own filings.
The confusion came from unfamiliarity rather than concealment. Most divorce attorneys are far more used to untangling brokerage statements than LLC operating agreements tied to a retirement account.
What This Means For Anyone Considering The Structure
None of this is a reason to avoid a self-directed IRA. It is a reason to keep clear, accessible records of what the account owns, particularly in a marriage, since these structures are less transparent to an outside party than a standard brokerage statement.
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For those considering this kind of account, IRA Financial provides ongoing account administration and annual reporting support specifically to account holders and, when needed, their attorneys have a clear paper trail of what the IRA-owned LLC holds and what it is worth.
Where The Case Stands
The couple’s divorce is still working through the process of formally valuing both properties for the purposes of dividing the retirement assets. In the meantime, both parties have agreed to bring in an independent appraiser rather than relying solely on the self-reported valuation from the account’s own annual filing.
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This article Ex-Wife, 48, Says Her Ex-Husband Hid $340,000 In Real Estate Inside A Self-Directed IRA During Their Divorce originally appeared on Benzinga.com
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