Ending a marriage may have serious and long-standing financial consequences, especially if the spouses have unequal income or assets. However, divorce may have the greatest financial impact on retirement savings unless some precautions are taken.
Spouses who have retirement savings that are roughly close in value may agree to simply keep their own accounts. However, a spouse with less money in their account may try to negotiate for part of their former spouse’s retirement savings.
Retirement savings usually belong to the person named on the account. A qualified domestic relations order, however, allows a spouse to legally transfer some of that money to the other spouse. However, this is usually limited to savings accrued during the marriage. A QDRO may also, in some cases, allow transfer of a spouse’s pension. However, this comes with fees and may take time.
One of the biggest financial changes after a divorce is that both spouses must pay independently for expenses that were jointly paid for during their marriage. This requires important decisions on the division of large assets. This also requires a new budget and retirement plan. Living expenses and a spouse’s anticipated retirement date may have to be changed.
Subtracting the ideal retirement age from life expectancy indicates the estimated retirement length. Then, calculate predicted yearly retirement living expenses and multiply this by the anticipated retirement length and then add three percent each year for inflation. Any money from a pension or Social Security should be subtracted.
If a couple was married for at least 10 years, a spouse may be able to claim Social Security benefits on their former spouse’s work record even if that spouse remarries. The spouse seeking these benefits must remain single and be at least 62-years-old. Also, the benefit being sought from the former spouse’s work record should be more than the entitled benefit from the work record of the spouse seeking benefits.
An attorney can help a spouse develop a plan and strategy to protect their financial future after divorce. They may also help ensure that the divorce decree is fair and reasonable.