Bartholomew & Wasznicky LLP
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Sacramento, California

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How a divorce will affect your plans for retirement

During a divorce, people often focus on what will happen to them in the near future. They think about where they will live after the divorce, how much money they will have to live on and where their kids will be spending the weekends.

Of course each of these concerns is serious and must be taken as such. However, it is also crucial that people understand that there are also long-term ramifications of a divorce that may not seem immediately clear. For example, did you know that your retirement funds and plans are significantly affected by your divorce?

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In California, your 401(k), 403(b), IRAs, pensions and other forms of deferred compensation are available for division and distribution in a divorce. Because this is a community property state and these accounts are generally considered to belong to the community, they will be divided equally or offset against each other. If any of these plans were earned prior to marriage, then there is a separate property component which needs to be determined.

What this means is that after your divorce, your plans for retirement may have to change dramatically. Often plans for an early retirement are postponed. You may need to start considering options like selling properties and sticking to a stricter budget to save some money. Working longer will result in increased retirement benefits and increase savings.

You may also decide to be more aggressive with your contributions to your own retirement funds for at least a short period of time to try and rebuild these accounts, but this may not be feasible for everyone.

A recent article in Time's Money online magazine examined this issue as is specifically relates to older people who are getting divorced. This particular group of people may not have much more time to rebuild their retirement accounts if they are already nearing retirement age.

However, there are many resources and options available to people who want to increase contributions to retirement funds or reassess their current savings plans. Consulting with a financial advisor is helpful in making these decisions. If the marriage lasted 10 years, there is a derivative from social security. Researching and know what the amount of this benefit will potentially augment your retirement income.

Considering how significantly your future can be affected by divorce and the many complications of the division of assets, it is a good idea to have the support of a knowledgeable family law attorney.

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