Don't let divorce wreck your retirement plans
Half of the marriages in the U.S. do not, in fact, end in divorce.
Research has debunked that common perception. Over the past couple of decades, the divorce rate has been听, with one exception. Those over age 50 have seen their divorce rate double since 1990, according to the National Center for Family & Marriage Research at Bowling Green State University.
That age is a particularly inopportune time to split up because retirement has just started to feel within reach. Your assets are building up and you may be in your peak earning years. Divorce doesn鈥檛 doom that financial security, but it does threaten it.
If you鈥檙e headed down that road after 50, here are some ways to preserve your finances as you untie the knot.
Review your situation
It鈥檚 always useful to map out how your money travels in and out of your bank account, but that move is even more crucial during 鈥� and especially, before 鈥� a divorce.
鈥淵ou really need to evaluate your sources of income and sources of expenses,鈥� says Lili Vasileff, a certified financial planner and president of Divorce and Money Matters, a financial planning company. 鈥淢any times, individuals haven鈥檛 done it recently, haven鈥檛 done it at all or have a complete misperception of their own spending.鈥�
Consider how that spending will change after you鈥檙e done untangling, down to the little details. Many expenses 鈥� including auto insurance 鈥� are lower when you are half of a married couple rather than when you are a single buyer.
Seek new sources of income
It鈥檚 no secret that household income takes a hit after a divorce. According to a 2012 report by the Government Accountability Office, divorce or separation led to a 41%听drop in income for women, much higher than the 23% decline for men.
Look at how much income you need going forward and, if you鈥檙e short, how you can make up the gap. Downsizing is often the best option. You may want to keep the house for emotional reasons, but selling can make more sense in a divorce. Other ideas: Rent out an extra room or test out the gig economy by driving for Uber, walking dogs or running errands.
If you鈥檙e closer to retirement age, you may have additional options. 鈥淵ou may have delayed applying for Social Security, but maybe you need to do so when you鈥檙e divorced. Or maybe your investments are positioned for growth, and now they need to be positioned to generate yield,鈥� Vasileff says.
Consider delaying the split
This isn鈥檛 an option for every situation, but if you鈥檙e close to certain financial milestones, you 听may want to separate and push off the divorce until you meet them. Two big examples from Vasileff: Medicare eligibility at age 65, and the 10 years of marriage needed to be eligible for Social Security benefits on your ex-spouse鈥檚 record.
Why does Medicare matter? If you鈥檒l lose coverage by dropping off your spouse鈥檚 insurance, Medicare costs can be considerably cheaper than COBRA or a health plan from the Healthcare.gov marketplace or a state health exchange. You can find out when you鈥檙e eligible for Medicare and estimate your premiums through听.
Make the most of retirement benefits
In community-property states, marital property 鈥� including retirement assets 鈥� is split equally. Other states require equitable distribution, which means fair but not necessarily equal. If you鈥檙e allocated a portion of your spouse鈥檚 401(k) under a听听(QDRO), you typically can roll it into an IRA to preserve its tax-deferred status.
If your spouse has a pension, how he or she elects to take it could affect you, according to Vasileff. Taking the standard election means that when the pension owner dies during payout, the ex-spouse stops receiving a share. But with a QDRO, you may be able to receive a survivor鈥檚 pension, typically equal to half of the benefits your ex-spouse was receiving. 鈥淭hat鈥檚 valuable when you have a spouse who might be ill or older,鈥� says Vasileff.
Consider, too, the tax treatment of assets. For example, $100,000 in a 401(k) or traditional IRA is not equal to $100,000 in a听. The former was contributed pretax and will be taxed as ordinary income when you withdraw it in retirement. The tax burden from a brokerage account 鈥� on capital gains, interest and dividends 鈥� is generally much lower.
Finally, be sure to update beneficiary designations on all听听and life insurance policies. You may have heard tales of the rich mogul who stopped updating his beneficiaries three wives ago. While you may not have his wealth, you will want every dollar you have to go to the right person.
听Arielle O鈥橲hea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter:听.
This article was written by NerdWallet and was originally published by听.
