Don’t let divorce threaten your retirement

On Behalf of | Jan 11, 2022 | Divorce

While divorce rates among younger couples have decreased in recent years, the same is not true across the board. Couples over the age of 50 are divorcing at higher rates. According to the Pew Research Center, divorce rates for individuals who are over the age of 65 have tripled since 1990.

These divorces, also known as gray divorces, create a unique set of challenges. Older couples tend to have acquired significant assets. And, the more assets present in a divorce, the harder the property distribution process.

Fortunately, with proper planning, you can divide retirement assets in a way that better protects your future. Before finalizing your divorce, be sure to avoid falling into divorce pitfalls regarding the following:

Retirement asset transfers

Company-sponsored retirement plans, such as a 401(k), as well as your IRA plans have strict rules surrounding the transfer or removal of assets. Withdrawing distributions at the wrong time can leave you facing a large tax bill and hefty early withdrawal fees.

To avoid those fees, it can be worthwhile to speak with an experienced attorney who can work with you to develop a qualified domestic relations order (QDRO). This document will allow you to divide your retirement plans within the context of your entire divorce settlement. By using a QDRO, you can avoid costly taxes and fees, thereby keeping more of your money in your pocket.

Keeping the family home

One of the more contentious pieces of the property division phase in a divorce is the family home. Your home may have a lot of sentimental value, and it may also be one of the more valuable assets that you own with your spouse. Be wary, however, about putting too much of your share of the divorce settlement into just the house.

Just as when you invest, diversification is a sound principal to apply. Housing prices can – and do – quickly decline in ever-changing real estate markets. This could leave you holding an asset that is worth significantly less than you anticipated.

Additionally, it can also result in a situation referred to as “house rich and cash poor.” If you lose your job and do not have other liquid assets, you may be forced into a position where you have to sell your home.

The bottom line: plan ahead and understand potential challenges

No matter how many assets a couple owns, resolving the distribution of marital assets always carries some challenges. By planning ahead and understanding the potential hazards that can emerge, you can place yourself in a better position to make decisions that increase the chances of achieving your desired post-divorce lifestyle.