The costs of divorce can be huge and far reaching. When you’re younger, divorce can negatively impact children, and everyone in the family can have a tough time picking up the pieces. When you’re older, divorce can be a blow to retirement plans, and you might even find yourself retiring later or looking for a part-time job to supplement your income. Even if you’ve planned well for retirement, chances are you never planned on getting divorced in midlife or beyond. Questions arise regarding divorce pension rights, dividing retirement assets, and more. If you find yourself single now that you’re headed toward retirement, it’s vital that you regroup, reorganize, and rethink your finances in order to better plan for the reality of your new single life.
Divorce pension rights
Laws regarding your rights to your spouse’s pension can be complicated, and they often differ from one state to another. In most states, a pension earned during marriage is typically considered a joint asset or ‘community property, meaning you will likely be entitled to half of what your spouse paid into a pension during your marriage. This can be contested, however, and it can ultimately be up to divorce courts to decide how pensions are divided. Pensions generally must be included in the marital assets to be divided during divorce proceedings. There are steps you can take to ensure you’ll be awarded half of your spouse’s pension in a divorce. Find out how much money was paid into your spouse’s pension during the years you were married. It is important to note that pension benefits earned after a separation may not be included in marital property, and you will need to make sure that your spouse’s pension is written into your divorce agreement with specifics included on how and when it will be divided. Again, as laws regarding such benefits vary from state to state, it may be in your best interest to seek counsel to protect your rights regarding any pensions, 401(k) funds, or other property that may be contested.
Dividing retirement assets
As with most laws, laws dividing retirement assets in divorce vary from state to state. Most states divide marital assets under laws referred to as ‘equitable distribution’ or ‘community property’ laws. If an agreement between spouses cannot be reached, it likely will be the job of a court to determine the value of all marital debts and assets. These will then be distributed between divorcing parties until the scales are balanced between them. A retirement asset such as an individual retirement account (IRA) or a 401(k) will be valued by combining contributions that occurred during the marriage and including all decreases and increases in value. Laws concerning ‘defined benefit plans,’ where an employee is provided with a monthly payment beginning at retirement age, can be more complicated. Pensions are considered defined benefit plans, and spouses can benefit from the services of an attorney to protect the parties’ rights concerning these. Courts often will use actuarial experts to figure a present value of future retirement asset payments in order to assign a lump sum value to such plans
Qualified domestic relations order
A qualified domestic relations order, or QDRO, (pronounced “quadro”) is an order to be included in a divorce settlement regarding assets such as pension funds. A QDRO is a court order or judgment that will give instructions on how a pension plan will be paid. These judgments apply only to plans that areIRStax-qualified and covered by the Employee Retirement Income Security Act (ERISA). They do not cover government or military pensions, and there are separate laws for these. A QDRO is designed to give protection that a marriage settlement agreement may not. It is important to enter into a QDRO in order to ensure equitable distribution of pensions earned during marriage.
Social security benefits are important to consider among divorcing spouses. Social security benefits are available to divorced spouses and ex-spouses of employees as long as the marriage lasted 10 years or more. Spouses must have been divorced for more than two years to receive these benefits. Something many divorced or divorcing spouses are not aware of is that, if an employee was married to more than one spouse for at least 10 years, more than one ex-spouse can make a claim on social security benefits. Additionally, if the worker spouse dies, an ex-spouse may be permitted to claim survivor benefits. However, if an ex-spouse making a claim remarries, worker spouse benefits will cease.
Divorce is difficult to deal with at any age. It can be especially challenging after you’ve spent so many years with your spouse, planning for the future and expecting to grow old together gracefully. One of the biggest difficulties in dealing with divorce at age 50 and beyond can be how to recover from the financial ramifications, especially since you were looking forward to a retirement free from money troubles. If you’re facing a divorce, be sure to protect your rights regarding all property, pensions, and retirement funds earned and acquired during the course of your marriage.