How Divorce Affects Your Retirement

Advisor February 5, 2018

Saying “I do” is saying yes to all the ups and downs of the marriage. It also means saying yes to sharing the burdens and prospers of raising a family. Marriage can also mean that people in this matrimony will merge their assets and liabilities incurred after saying those two words.

6 out of 10 marriages in the United States end in divorce

Most people who have already been married once usually apply for a prenuptial agreement to protect themselves and their assets when a separation might happen. For some people, getting a prenuptial indirectly states that the love will not last and one is anticipating a divorce. If you ask statistics, getting a prenup offers security since almost 6 out of 10 marriages end up in divorce and separation. If you are not one of those people who signed a prenuptial agreement, here are some of the areas where divorce can affect your retirement.

Social Security

According to survey, the average cost of divorce ranges from $15,000-$30,000

Getting divorced after retirement can give divorced couples some options that will work for the both of them. An unemployed ex-spouse is entitled to his/her spouse’s benefits as long as he/she doesn’t remarry and is 62 years old or older. They should be married for a minimum period of 10 years to make the claims more valid. If the ex-spouse die and the other one is already entitled of the social security, he/she can apply for a raise of the benefits that will be given to him/her from the ex-spouse’s account. If the unemployed ex-spouse remarries a person who has lower income than the previous partner, this automatically nulls the claim for the Social Security benefits.

Retirement

If social security will grant both parties equal amounts of benefits, the retirement plans and funds may not be as fair. If the person has already been paying dues for 401(k) and other retirement plans, the money that was paid prior to the marriage will be given solely to that person. Retirement dues paid within the marriage can be divided equally depending on some considerations.

For a 401(k) plan to be divided equally, the couple will have to acquire a Qualified Domestic Relations Order (QDRO). QDRO is a judicial order that recognizes the spousal’s division of the retirement plan of the employed spouse. This will give a draft plan to the financial advisor on how much of the money will be shared. The money will then be deposited to the non-employee ex-spouse’s account.

House

The 401(k) and social security are not the only things that should be discussed during separation. The house is an asset too that needs to be divided. For most women, they decide to keep the house instead of getting monetary benefits. This is because they value sentiments the house has brought into the couple’s lives. For some, they find it as a bad idea, but since real estate is also a good investment, this plan is somehow strategic.

Most states automatically puts a restraining order on selling or transferring the house when divorce is filed

The divorce financial planner (DFP) can make arrangements about this matter. They can settle to give the house to the other as a compensation of the supposed division in money.

Other helpful tips during divorce

Divorce can be a very painful and long process for couples. According to a family attorney, Janice Green, getting divorced at a retirement age is even more difficult. It can disrupt both assets and benefits of the couple, especially if the partner doesn’t have a job. Dividing properties and getting the benefits will follow many considerations. If you are planning to still undergo the process, make sure to prepare yourself for a long ride.

Stashing or setting aside personal money will become helpful along the way. Divorce is a very expensive transition. There are lawyers to be paid, marriage counseling, and hearings that need money for it to move on. Don’t sign any documents that are not reviewed by your DFP. Always learn to consult and be open to your lawyers so that you can arrive at a just settlement. Remarrying after a divorce can possibly forfeit you of the benefits. Make sure that if you do remarry, you’re ready to somehow lose the battle for the division of assets.