Retirement is a major milestone that most couples look forward to. But some couples find the transition to retirement negatively impacts their marriage, sometimes resulting in irreconcilable differences and divorce. Rates of late-in-life divorce, also called “gray” divorce, have risen considerably since the 1990s. In fact, 10% of all divorces now involve couples age 65 and older, according to the American Bar Association.
Going through a divorce after retiring can be complicated, as you’ve likely spent many years saving and planning for your future as a couple. You and your spouse may have already begun collecting Social Security benefits and drawing down your pension or retirement savings, making these assets trickier to parse out. A financial advisor can help you map out your finances and plan for retirement after your divorce.
Navigating the Legal Process of Divorce After Retirement
From a legal perspective, how you divide your assets is determined in part by where you live. In community property states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, all assets need to be divided 50/50 by law. But things work differently if you live in a common-law state. Instead of dividing your assets 50/50, assets need to be divided equitably, which means both parties need to agree to a fair split.
As you can imagine, coming to an agreement on a fair split is often trickier than simply dividing things in half. Hiring a divorce attorney can make the process simpler, though it will come at a cost.
Dividing Retirement Assets in a Divorce
While your name is on your IRA or 401(k), your spouse may be entitled to some of your savings. Again, speaking with an attorney might help you better navigate the process of dividing your retirement assets. In the case of 401(k)s, both parties will likely need to file a qualified domestic relations order (QDRO) in their home state. These orders outline how a couple’s retirement savings should be divided. When dividing assets, keep in mind that a direct rollover is likely the most tax-efficient option for both you and your former spouse.
IRAs work slightly differently. You won’t need to file a QRDO to divide your IRAs, though you and your former spouse will need to come to an agreement on what to do with these assets. You can generally only do a direct rollover to a former spouse’s IRA once you have a divorce settlement in hand and inform the account custodian.
Dealing With Social Security and Pension Benefits in a Divorce After Retirement
Dividing Social Security benefits and pension payments are two common challenges that retired couples face as they navigate a divorce. Here’s what to keep in mind with each:
If you’re collecting Social Security payments, the payment amounts could change when you get divorced. That’s because you may be entitled to a portion of your former spouse’s Social Security payments. Likewise, they may be entitled to a portion of your payments, depending on the benefit amount each of you receives. Per the Social Security Administration, your ex may receive a portion of benefits if:
- You were married more for than 10 years
- Your ex has not remarried
- Your ex is over age 62
- Your former spouse’s Social Security benefit amount is lower than yours
Contacting your local Social Security office can help you decide how to navigate this situation. And if you opt to hire a divorce attorney to simplify things, they’ll be able to provide guidance as well.
Pension plans are another source of income that may be impacted by a divorce. While you were the one who worked to receive your pension, your former spouse may also be entitled to a portion of it, though likely only the portion you earned while you were married.
Unfortunately, dividing up a pension can be trickier than dividing other retirement assets. Many pensions are subject to specific state regulations, plan rules and more. If you both have pensions, rather than trying to split the assets, the party with the larger pension might consider compromising on another asset to help make up the difference.
The Impact of a Post-Retirement Divorce on Estate Planning
Beyond dividing your assets after a divorce, you’ll also need to think about the impact your divorce has on your estate plan. Even after you’ve reached a settlement with your ex, you’ll still need to revise certain estate planning documents. Things that may need to be updated include:
Divorce is a complicated and emotional process, no matter how old you are. If you split from your spouse in retirement, you’ll need to determine how to divide your assets, including your Social Security payments, retirement savings, and pension plans. You’ll also need to update your estate planning documents to reflect the life changes. Consider working with a professional to get trusted guidance and help ensure things are divided in a way that’s fair for both parties.
Financial Tips for Divorce
- Some financial advisors, including certified divorce financial analysts (CDFAs), specialize in helping clients plan for the financial realities of divorce. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- After your divorce is finalized, you may want to update the beneficiary of your retirement accounts and other assets. And if you have a life insurance policy in place, you’ll need to decide who should receive the death benefit if you no longer want your ex-spouse to be the beneficiary.
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