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kshawbenefits

Division of HSA Assets

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A client's employee is going through a divorce, and HSA assets were divided. The former spouse set up a new HSA to receive her share of the funds and to make future contributions.

The employee is being told by the bank that holds his HSA has said that they will only issue a check to the former spouse directly, and not to the institution where she has set up her new HSA. 

Does anyone have any specific guidance on this issue? Thanks in advance. 

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The transfer of an HSA interest to a former spouse pursuant to a divorce decree is not considered a taxable transfer.  After the transfer, the interest is treated as the former spouses. Since in this case it was not directly transferred to her newly established account, then like a retirement plan distribution (or IRA), she has 60 days to rollover that amount.  However, unlike a retirement plan distribution, there is no concern of the automatic 20% withholding upon distribution of an HSA.   

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Isn't this putting the cart before the horse?  Can a rollover by the spouse be effected if the non-taxable division has not occurred? 

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