Divorce is complicated under almost any circumstances, but that’s especially true for couples who are splitting up during retirement. Mature couples have years, decades, and sometimes even a lifetime of shared assets and entwined savings and retirement accounts they’ll need to divide before their divorce can be finalized. If you’re preparing to go through a divorce after you’ve retired, you should first familiarize yourself with the financial and legal strategies for protecting your resources and providing for your long-term care.
Understanding Gray Divorce and Retirement Assets
Divorce after retirement, sometimes popularly referred to as “gray divorce,” can involve financial considerations that couples in their working years may not have to face. The division of marital property is often particularly challenging, as it can include retirement investment accounts, pensions, annuities, and other assets that people rely on for financial support during retirement. While working couples who get divorced can depend on their employment income, couples who get divorced after retirement may have been depending on the assets they now must divide.
Dividing retirement assets can also involve unique legal procedures. For example, dividing certain retirement accounts or pensions may require parties to obtain a qualified domestic relations order that directs the account administrator to pay a portion of the benefits to the non–account holder spouse, rather than having the account holder spouse withdraw a portion of the account balance and turn it over to their spouse in divorce.
How Divorce Affects Retirement Savings
Divorce after retirement necessarily has consequences for retirement savings. First, the division of retirement assets that qualify as marital property will reduce the total funds each spouse has to support themselves during retirement. Furthermore, dividing some retirement assets requires specific legal procedures to mitigate possible tax implications. Due to a potential reduction in retirement savings, parties may need to adjust their retirement plans or return to the workforce to earn income.
A divorce can have other, less obvious financial consequences in retirement. For example, splitting from one’s spouse means losing a partner to share living expenses. As a result, divorced spouses will shoulder household expenses alone, including rent/mortgage, utilities, property taxes, property maintenance, groceries, and transportation expenses. Those who get divorced after retirement may need to revisit their budget and investment strategy to account for the new financial realities of fewer retirement assets and increased living expenses.
Effects on Social Security and Pension Benefits
Even after a divorce, an individual may retain eligibility to receive Social Security benefits based on their ex-spouse’s work record. However, when couples divorce after retirement, one spouse may end up with a spousal support obligation that they must pay from their Social Security retirement benefits, pensions, and other retirement income.
Protecting Financial Stability After Divorce
Those getting divorced in retirement can best protect their financial stability by:
- Consulting a financial or retirement advisor to assess post-divorce savings and income and make changes to budgets or retirement plans as necessary
- Ensuring that their budget reflects their new financial obligations from not having a spouse to share household and living expenses
- Reviewing estate planning documents, including powers of attorney and beneficiary designations for retirement accounts, pensions, and life insurance policies
- Assessing the potential need for returning to work, taking on part-time employment, or adjusting spending habits to minimize expenses
Contact a Divorce Attorney Today
Although getting divorced after retirement can have profound implications for your savings and income, a tailored strategy can help you manage these challenges. Contact Hill Crabb, LLC today for a confidential consultation with our law firm to discuss the considerations you should keep in mind when pursuing a divorce after retirement.