What Happens To My Retirement Money In Divorce?

In Colorado, assets acquired during marriage are equitably divided between spouses in divorce. Retirement funds are often the largest liquid asset involved in divorce, and come with a lot of complex issues when it comes to division. The largest of these issues is taxes, and depending on the type of retirement fund you have, there could be financial ramifications of dividing retirement money that you should be aware of before a divorce is finalized.

Proper Division Of IRAs

When transferring assets from one spouse’s IRA to another’s, you must label the transfer as “incident to divorce.” This is necessary to avoid penalties for early withdrawal from the IRA. Both the sending and receiving IRA custodians must sign off on the transfer and it must be approved by a judge. This process must be completed within one year of a divorce settlement to avoid review by the Internal Revenue Service.

Proper Division Of Qualified Plans, Such As 401(k)s, Defined Benefit Plans & Pensions

To divide a qualified plan between two parties, you need a qualified domestic relations order (QDRO). A QDRO is a court order that recognizes a former spouse’s interest in their spouse’s qualified plan assets. Using a QDRO, the “participant” transfers assets into the “alternate payee’s” IRA or qualified plan. Much like transfers incident to divorce, these must be reported correctly to the courts and retirement custodians to avoid any unfortunate tax penalties.

If you have questions regarding the division of your retirement accounts in a Colorado divorce, our Denver divorce attorneys are well-equipped to assist you.

Are Women Worse Off In Retirement After Divorce?

Earlier this year, Congresswoman Carolyn Maloney of the U.S. Joint Economic Committee released a stunning report about the gender pay gap and the long-term effects it can have on women. It also addressed how lesser pay over a long term slashes the retirement prospects for women, an effect that has drastic implications for divorcing women.

According to the report, over the course of a woman’s career, she can expect to make a little over $10,000 less than a man in the same role per year. Over a lifetime, that amount can reach a staggering half million. Not just that, but the report noted that women tend to leave jobs more frequently than men, making them less able to set up pensions (33 percent of women have pensions, compared to 55 percent of men). Women also generally have lower salaries.

Not only that, but because women often bear the brunt of taking care of the immediate needs of their families, they often invest less in their retirement accounts than men do. As a result, women often have less money than men during retirement ”“ and if divorce happens, this can be detrimental to womens’ prospects for the futures.

The Effect of Divorce on Women and Retirement

Because women are less able to plan for retirement than men, in addition to the expenses of filing for divorce, attorney fees and the disputes that go on during property division, divorcing women are typically disadvantaged in divorce. In fact, divorced women actually have some of the highest poverty levels among women ”“ even widows are generally at less risk of poverty than divorcing women. Only women who never marry have worse poverty levels.

So, how can women prepare for retirement and divorce in light of the overwhelming pressures they face? Women should be aware of how their divorce settlements will affect retirement accounts for both themselves and their spouses. Consider the future values of assets during the process of marital asset division, not just the current values. Many divorcing couples are interested in the here and now ”“ who gets the house, who gets the cars, who gets the boats. But often, retirement accounts (due to their tax-free growth) are much more valuable in the long term than other property. Trading some assets away during the divorce may be a worthwhile exchange for a portion of a spouse’s retirement fund.

Our Denver family law firm can assist your family in property division to ensure that both parties receive an equitable, future-proof portion of your marital assets.

Is Gray Divorce More Expensive?

The divorce rate for couples over the age of 50 has been rising steadily since 1990. Now, almost 25 percent of divorces involve at least one party over 50. These are known colloquially as “gray divorces.” Why are gray divorce rates increasing? Several reasons have been proposed. Longer lifespans, more women in the workforce and changing ideas about the purpose and meaning of marriage are all contributors to rising gray divorce rates.

It’s no secret that divorce is expensive ”“ but you’d think that older people who have had time to amass wealth would be less vulnerable to the financial hit. Current research, however, suggests otherwise.

Gray divorce leaves less time for divorcees to recover. Things like remaining work years, complex commingled assets as well as issues of estate planning and adult children can all make it difficult for people over 50 to weather the financial storm of divorce.

Ensuring Your Retirement After Gray Divorce

Here are some considerations to make to ensure that gray divorce does not ruin your retirement.

  1. Don’t go it alone. There are many professionals out there that are ready and willing to help you make this transition smoothly. Seek out a divorce attorney, financial planner or accountant to help clarify your exact wealth and assets.
  2. Consider downsizing your real estate. Sometimes, it is prudent to sell the marital home for something smaller and more suited to your needs.
  3. If you were married for over 10 years, don’t forget that you are entitled to spousal Social Security benefits.
  4. Don’t forget about your health. Healthcare costs in retirement can be expensive, and you will likely need to adjust your health insurance as a result of divorce.

If you are concerned about finances following a divorce after 50, discuss your concerns with a Denver divorce attorney.

Should I Divorce My Spouse In Order To Get More Social Security Benefits?

Can you collect Social Security benefits from an ex-spouse if you have remarried since your original divorce?

It’s actually more complicated than the Social Security Administration (SSA) makes it sound. There are many reasons why a remarried spouse might seek retirement benefits from an ex. Let’s use an example: suppose you are remarried and you collect Social Security. Your current spouse is still working, but perhaps you could use a little extra to help with bills, such as your current spouse’s recurring medical expenses. Is it possible to collect on a retired ex’s Social Security so that your current spouse can retire without breaking the bank?

According to the SSA, you can collect Social Security benefits from your ex-spouse’s retirement if you were married for 10 years, but you cannot be remarried. This begs another question: should you and your current spouse get a divorce so that you can collect on your ex’s benefits, in addition to your own and your current spouse’s?

Explaining The Excess Divorced Spousal Benefit

If you choose to divorce your current spouse in order to “triple-dip,” as it were, on Social Security benefits, you need to understand how the excess divorced spousal benefit works.

The excess divorced spousal benefit is equal to 50 percent of your ex’s Social Security benefits, minus 100 percent of your own. The surplus will be added to your own benefits. So your first step is to figure out if this equation leads to a better outcome for you, considering the costs of divorcing your current spouse as well as any changes that need to be made regarding estate planning, wills, etc. If it would be a boon for you, then you don’t need to worry about the SSA coming knocking ”“ but think carefully about the benefits of marriage you would lose and whether those outweigh the excess divorced spousal benefit you would receive.

Our Denver family law attorneys are well-versed in matters that pertain to divorcing retired couples and can help you plot out your best course moving forward.

Can I Lose My 401(k) To A Divorce?

Senior divorce (you may have heard it called gray divorce or silver divorce) has been on the rise since 1990. Suppose you have a 401(k) you’ve been paying into for many years. You’ve had a happy marriage as well, however, that marriage has been falling apart at the seams. Finally, you are told that your spouse wants a divorce ”“ what happens to that retirement account? Is it yours, or will it be divided between you and your spouse during the divorce proceedings?

The division of retirement funds in divorce needs to be understood by both parties prior to the divorce, because the sudden financial shakeup that results can drastically alter a person’s retirement plans.

Retirement Funds Are Marital Assets

According to a recent survey from the American Academy of Matrimonial Lawyers (AAML), the three most commonly fought over assets for divorcing couples over the age of 50 are alimony (called spousal maintenance in Colorado), business interests and retirement accounts. When it comes to your retirement account, you have some options:

  1. Because marital assets must be divided equitably, you can choose to keep the entirety of your 401(k) while giving up other marital assets of comparable value. When considering this option, you must look at the long-term tax ramifications of such an arrangement as well as the current and long-term value of the assets you are exchanging to keep your 401(k). What may be equitable division now may not look so equitable in the future.
  2. You can split the 401(k) with your spouse. To do this, you must have a Qualified Domestic Relations Order, or QDRO. Your attorney can help explain how a QDRO can help, or you can read our related blog here.
  3. If you are over the age of 59 ½ or have left your company, you can roll over a portion of your 401(k) into an IRA to be awarded to your ex-spouse. This option may be desirable because it allows you to remove the funds from your 401(k) without any tax penalties, as well as giving your spouse more control over the funds awarded to him or her.

Our Denver divorce attorneys can help you determine the best course of action moving forward for clients divorcing after 50.