Navigating Retirement Planning Through Divorce

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Navigating Retirement Planning Through Divorce

Divorce is skyrocketing amongst baby boomers. Here’s what you need to know when going through a late-in-life divorce.

Planning for your golden years is an ongoing and complex task, and it becomes even more challenging when divorce is involved. While divorce can take a toll on your emotional well-being, it’s crucial to ensure it doesn’t compromise your financial stability in retirement. Proactive steps today can safeguard your future financial peace of mind.

Rise of the Gray Divorce

Gray divorce refers to the dissolution of marriage among older couples. 

Divorce, particularly in your later years, necessitates additional financial considerations. A new analysis of divorce data from 1990 to 2021 released in July by Bowling Green State University’s National Center for Family and Marriage Research found that divorce rates for those age 45 and over rose during that period, while rates dropped for those younger than 45. The most significant increase in divorce rates was among people 65 and older: The rate tripled from 1990 to 2021.

As the youngest of the boomer generation approach 60, and older boomers are closing in on 80, researchers say this gray divorce trend doesn’t show signs of slowing. But younger generations are likely to avoid similarly high rates of late-life divorces.

The division of assets during a divorce could potentially reduce your assets by half and double your living expenses, a risky situation when there’s limited time to recover financially.

Key Considerations During Divorce

Key issues that arise in divorce proceedings include the division of property and the valuation of assets. All of these factors contribute to the complexity of managing your retirement post-divorce. Here’s how CKS Summit Group can assist you in safeguarding your retirement assets during these challenging times.

Protecting Your Retirement Assets

Understand the Rules: Familiarize yourself with the regulations governing the division of retirement assets. Different retirement plans have specific guidelines for asset division in divorce. Knowledge of these rules, and adherence to them, is essential.

Avoid Consequences: Non-compliance with these rules can result in the loss of these assets, even if they were granted to you in the divorce settlement. Stay informed and proactive to protect your interests.

Seek Professional Help: Employing a family law attorney is vital. They can guide you through the divorce proceedings, ensuring you are aware of the relevant laws in your state and helping to safeguard your assets.

Dividing Retirement Accounts and Pensions

Individual retirement accounts (IRAs) can be divided using a court order or judgment. However, dividing guaranteed pension payouts is more complex. Pensions earned during marriage are typically considered joint property and subject to division. The method of division depends on the terms of the divorce decree.

Retirement account division after a divorce typically involves obtaining a court order called a Qualified Domestic Relations Order (QDRO). A QDRO is a legal document that outlines how the assets in the retirement account(s) will be divided between the two parties.

The QDRO specifies the amount or percentage of the retirement account to be awarded to the former spouse, and the plan administrator then distributes that portion directly to the former spouse. It’s important to note that taxes may be owed on the distribution, so it’s essential to consider the tax implications of any retirement account division.

It’s also important to work with a trusted financial professional who can help navigate the complexities of dividing retirement accounts during a divorce. They can help ensure that the QDRO is properly drafted, and all necessary steps are taken to protect both parties’ interests.

Review Your Estate Plan

When going through a gray divorce in retirement, reviewing and updating your estate plan is crucial to ensure your assets are distributed according to your wishes. Divorce can significantly impact your estate plan, making it essential to keep it updated for added financial protection.

You’ll need to revisit your will, trusts, and other estate planning documents to update your estate plan. This involves re-evaluating your beneficiaries, trustees, and executors and changing any powers of attorney or healthcare directives. By making any necessary revisions and ensuring that your estate plan reflects your wishes, you can be better prepared for the future and protect your assets for your loved ones.

Health and Other Insurance Coverage Changes

If you don’t qualify for employer benefits and are not yet eligible for Medicare, managing your healthcare and health insurance may pose significant challenges. However, you can bridge this gap through options such as COBRA and Individual Health Insurance under the Affordable Care Act (ACA).

Consider the Tax Implications

When going through a gray divorce in retirement, the tax implications of asset division can significantly impact your financial well-being. (Divorce can trigger several tax implications, such as capital gains, estate, and income tax).

Working with a financial advisor can help you understand the tax consequences of dividing assets in divorce. They can also help determine the best strategies for protecting your finances, which is crucial to minimize your tax obligations.

Let Us Help

Remember, divorce does not have to mean the end of your retirement dreams. A strategic approach and seasoned guidance can help ensure you maximize your retirement income whatever your marital status.

At CKS Summit Group, we craft customized retirement portfolios designed to provide stable growth, increasing income, and principal preservation throughout your lifetime. Our approach minimizes exposure to market downturns, ensuring your financial security.

Contact us today for a complimentary strategy session, and take the first step towards securing your financial future.