Planning For Retirement In Divorce: What To Do With Your Retirement Accounts

Gray divorce ”“ divorce for couples over 50 ”“ has been on the rise in recent years. As a matter of fact, one in four divorcing couples these days divorce past the age of 50. Because of this growing trend, we thought we’d address some considerations that these couples should make regarding retirement and how a divorce might affect it.

Even if you do not plan on getting a divorce anytime soon, or at all, it is still wise to discuss what to do with your individual retirement funds before the question ever arises. Too often, couples avoid discussing the D word almost like it’s Bloody Mary ”“ say it three times, and it comes for you. But this fear can lead to financial ruin in your retirement years. Luckily, preparation can prevent that. If divorce arises, know the following:

1. You may think you want the house more than retirement savings as part of your equitably divided divorce assets. In the short term, it may seem like the house is more valuable than any money you’ve thrown into a 401(k) or an IRA, but the housing market is volatile and a house is much more likely to come with unexpected expenses, plus the costs of maintenance and taxes. Think very carefully about trading your retirement funds for the house.
2. Speaking of taxes, depending on the types of retirement funds you and your spouse have, the amount of money you will be able to take out in retirement may be affected, so remember this when determining assets in divorce. Some types of retirement accounts, such as 401(k)s, are taxed when money is taken out in retirement. Others, like Roth IRAs, are not. So if you have a $500,000 401(k) and your spouse has a $500,000 IRA, your spouse will actually have more retirement money upon withdrawal due to taxes.
3. Your Social Security benefits can be affected by divorce. If you were married to your spouse for longer than 10 years, you can receive some amount of his or her benefits if you are unmarried, 62 or older, your ex-spouse is eligible for benefits and those benefits exceed the amount you are entitled to based on your own work history.