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Americans are living longer, and people typically want to spend those extra years enjoying life and being happy. For some, that means divorce after retirement, a situation that brings with it a unique set of financial hurdles.
A recent study from Bowling Green University found that the rate of divorce in Americans over age 50 doubled between 1990 and 2010. The study also found that in 2010, one in four divorces occurred to people 50 years and older.
Divorcing in retirement necessitates a different kind of separation of assets, as one or both spouses are likely on fixed incomes and living off retirement benefits accrued during the marriage. For older couples that are divorcing, and especially for wives who may have worked significantly less than their husbands and may be dependent on their spouses’ retirement benefits, knowing how to best assess and divide those assets is crucial to their financial security.
People divorcing in retirement have an advantage in that their resources are known and fixed, says Allison Alexander, CPA, certified divorce financial analyst (CDFA), and financial advisor with Savant Capital Management. However they may also face a set of unique financial challenges.
“Younger people undergoing divorce have longer time horizons for investing, more working years ahead of them, and can often tolerate more volatility in their investment choices,” Alexander says. “A divorced retiree may not be able to supplement [his or her] income with a part-time job due to old age and a lower energy level.”
While divorced retirees are more likely to have less debt, they also may be using distributions from their portfolios for living expenses, making it especially important to focus on the details when separating retirement benefits such as 401(k) plans, deferred compensation plans, 403(b) plans, IRAs, and pension plans.
Retirement benefits are not automatically split in a divorce; they require either an agreement between spouses through their lawyers or adjudication in court. If a spouse has held multiple jobs, he or she may have multiple retirement accounts. A divorcing spouse must investigate all past employers to ensure that he or she is aware of all possible retirement benefits that may need to be divided.
Almost all states consider retirement benefits to be marital property, or community property if you live in a community property state, which means they can be split. Dividing all retirement assets in half might not be the most efficient approach; if both spouses have retirement accounts of different values, they can choose to equalize them, moving money from the bigger account to the smaller until the accounts are equal.
Pensions are also considered marital property, but figuring out how to split them can be a little trickier.
If you receive part of a pension in a divorce settlement, you may want to consider the following:
“Plans and settlements are different, and you need to be aware of the uncertainties and what questions to ask,” Alexander explains.
All couples splitting retirement benefits need to obtain a qualified domestic relations order (QDRO), a court order that transfers the interest in the retirement benefits from the participant to the alternate payee. Without a QDRO, an ex-spouse may not receive the benefits agreed to in the divorce, regardless of what the divorce decree says. It is also prudent to include survivor protection in a QDRO to ensure benefits are still received if an ex-spouse dies.
Divorce at any age can be complicated and difficult. “It’s critically important to find good legal counsel and also a trusted financial advisor to lead you through this process. People are emotional, and it’s difficult to make significant decisions under duress,” Alexander says.
She adds, “Getting divorced is not just about untangling your life from another person but also laying the foundation for a much brighter future with financial security.”
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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