In a marriage both parties work hard to save for retirement. Unfortunately, your retirement may be at risk during the divorce. Divorcing couples need to be aware of the impact divorce will have on their retirement accounts so they can take steps to keep their retirement plans on track.
In many divorce settlements, both individuals split the community portions of the joint retirement assets. Individual retirement accounts, real property and other assets may be divided differently as every divorce case is unique. There are many options available in the division of the community assets. Likewise, there are options on the choice of how the divorce proceeds. Choosing a process that reduces the fees and costs and assists both parties in making difficult decisions is important. Many divorcing couples choose either divorce mediation or collaborative divorce in order to have a greater say in what is being divided and therefore a better understanding of the financial impact.
It is important to remember that whether the accounts are divided or whether each spouse’s retirement accounts are confirmed to the spouse who earned the benefits, once the divorce is final the future retirement income for each spouse will need to meet that spouse’s needs. Your retirement income will need to be sufficient to cover your housing, utilities, food, transportation, medical expenses, and entertainment expenses. You will no longer have two retirement incomes supporting one household. This likely means you have much less money for retirement than you did while married. Understanding how this will impact your retirement plans can help you plan for the future.
During the divorce process it is important that each party have a financial expert to evaluate the assets and to help create a plan for retirement. Everyone needs to know what is available to support yourself in retirement following a divorce. Unfortunately, divorce often defers retirement since each party needs to build back their estate to have a more comfortable retirement. Planning should include creating a new budget based on one’s income after the divorce and evaluating your retirement assets and needs.
Retirement planning is key when getting divorced. Failing to plan for your retirement can result in unrealistic expectations for your lifestyle and lead to budget issues now and in the future.
Working with an attorney can help you understand how your retirement assets will change and what steps to take to properly plan for your retirement after your divorce.
Source: Logan Daily, “Personal Finance: Resetting your retirement after divorce,” April 14, 2015