Years have passed in your marriage, you’re in your golden years and have come to the conclusion that you and your partner have simply grown apart or have irreconcilable differences – it’s time for a gray divorce.
That’s the term for couples aged 50 or older who divorce, and the numbers are on the rise. According to Pew Research Center, Gray divorce rates have doubled since the 1990’s, while all other divorce rates have fallen. When your kids are all grown up, the tricky part of the divorce process is you and your partner’s financial situation – how to divide the assets.
There are state-specific rules you need to follow when dividing 401 (k) plans and Individual Retirement Accounts (IRA’s.) If you don’t, you and/or your now divorced partner could face an additional financial hit or unexpected tax bill. The closer the couple is to retirement, the more severe the penalty if you don’t follow the rules.
The basics of asset division
It can be difficult to split up everything equally, but unless a pre or post-nuptial agreement was agreed upon, that will be the likely course of action. If any divorcing party owns an annuity, which can be extra tricky to spilt up, the divorcing couple may have to trade certain assets to avoid cashing out the annuity and losing its value.
It needs to be understood that when divorcing, you’ll likely have a major shift in income and your lifestyle will have to change. For a long time, you had a single household with one set income. Now, you’re separating that income into two households.
A factor that confuses many of those who get divorced, is that your spouse is inclined to receive some benefits of your retirement plan. It seems shocking that you would have to give up “your” retirement benefits, but it’s true. You aren’t entitled to all that money. As an example, annual 401 (k) additions come from a couple’s mutual income, thus your spouse would be entitled to some of that income.
Unless you save it for the end, are wiped out from divorce proceeding and agree to split assets or retirement plans 50-50, the legalize can get very tricky and a detailed legal plan should be devised. It can mean a world of difference for your post-divorce financial future.