Going through a divorce can be a disruptive experience, at the very least, for a couple ending their marriage. However, there can be devastating financial repercussions for people who divorce later in life as they can lose a large amount of their retirement savings with fewer years to build them back up.
Both spouses will have to adjust to their new lives, but the most significant impact will be on the former spouse with the fewest resources. That’s why many financial experts advise a thorough examination and understanding of their retirement plans, as well as how they may need to be adjusted.
Steps to protect your retirement
After getting a divorce, here are some common considerations:
- Get a QDRO: A qualified domestic relations order is vital if your former spouse has an employer-sponsored retirement plan, such as a pension or 401(k). QRDOs require plans to distribute benefits to nonparticipants and can be paid into IRAs or other retirement funds to avoid tax penalties.
- Social Security: If you were married for more than 10 years and have not remarried, you are entitled to receive a portion of your former spouse’s Social Security benefits. You may have to wait two years for payments to begin unless your ex is already receiving benefits.
- Take inventory of your assets: Once you understand what retirement benefits you will receive from your ex-spouse, list all your assets and investments to get a complete picture of your finances and the associated tax implications.
- Revise your retirement plan: Just as your original plan was constructed to meet you and your spouse’s goals while you were married, reconsider how those objectives have changed and rework your plan to meet your own retirement needs as well as your risk tolerance.
- Contribute your own funds and adjust your lifestyle: Protect your future by building a three-to-six-month emergency fund and add additional funds to your retirement accounts, if possible. More importantly, change your spending habits to reflect your current income.
Seek knowledgeable legal advice
Dividing pensions and other retirement accounts can be a complicated process during a divorce, especially for high net-worth couples. It can be even more complex calculating an amount if the participant spouse hasn’t yet retired. An experienced family law attorney here in California will protect your rights and help you receive the retirement benefits you deserve.