Divorce Over 50 Can Drain Your Retirement Savings
More older Americans are getting divorced, and as a result more people are faced with dividing up retirement accounts at the end of a marriage.
Special Financial Issues
People are living longer and social mores about divorce have relaxed, says Bari Weinberger, a family lawyer with the Weinberger Law Group in Parsippany, N.J. That has resulted in more older people seeking divorces.
She adds that more women are exiting their marriages after their children are grown because they feel more financially independent and secure.
Divorce over 50 may seem simpler in some ways – the children are likely grown, decreasing the chance that a custody battle will accompany the divorce – but financially, that’s often not the case.
Divorce can be different financially for older people, who can see the value of IRAs, 401k accounts, and Social Security benefits potentially affected. “There is less time to plan for retirement, and their retirement assets may be divided as part of a divorce,” confirms Weinberger.
Social Security Considerations
Social Security payouts are available for most people when they turn 62. If one spouse worked and accumulated Social Security, the financially-supported spouse could be entitled to a division of those benefits on divorce.
“The financially-supported spouse should write to the Social Security Administration to get an official statement detailing what their entitlement will be based upon their spouse’s benefit,” suggests Weinberger.
“They need to be even more aware of what their Social Security entitlement will be and what kind of annual or monthly budget gap will need to be filled when deciding settlement options,” she adds.
And if there do happen to be minor children, an older divorcing couple will need to take into account the retired parent’s Social Security benefit when calculating child support, she says.
Other Property Affected
The issue of retirement account division can also affect what the divorcing couple plans to do regarding the division of other property.
“They have to consider whether there will be an alimony obligation and how they will account for that monthly budget item after their retirement,” Weinberger says. “They may be more willing to provide the supported spouse with a larger portion of their retirement accounts, or leave the spouse’s retirement accounts alone if they can bargain a finite – as opposed to “permanent” – alimony obligation.”
“They may be more receptive to selling the marital residence in order to free up cash since the children are grown and they may not need or want the space,” she notes. “In my experience, the younger the couple, the less concerned they are about the division of the retirement assets and the more inclined, if there are young children, to try to stay in the residence to minimize disruption to children.”
Advice for Splitsville
If divorce is imminent and you’re concerned about your or your spouse’s retirement assets, there are some steps you can take.
“Mostly, make sure [you] understand the value and location of each of the assets and construct a realistic budget,” Weinberger suggests. That will assist you and your lawyer so that you are fully informed and ready for any settlement negotiations.
“I would consult with an adviser and even an accountant,” she adds, “so that changes in tax liabilities in the event of divorce, i.e., the tax bracket [you] might be in, are understood.”
And if you are the non-working spouse, you’ll likely want to apply for a “Qualified Domestic Relations Order” as part of the divorce, which will allow the administrator of the IRA or 401k to pay you the agreed portion as a beneficiary.