Divorce is indeed rising among couples aged 50 and older. The term ‘gray divorce’ is commonly used to describe this trend of spouses deciding to go their separate ways just as they approach their golden years.
But how will those golden years look for these couples? Will they still be able to enjoy a retirement filled with travel, hobbies and spending time with family? Or will they need to stay in the workforce to make ends meet?
The financial impact of divorce
Connecticut is an equitable distribution state. Marital assets will be divided fairly, but not necessarily equally. During a long marriage, it’s not uncommon for a sizable portion of those assets to be in 401(k)s, IRAs and pensions. In addition, if one spouse was the primary breadwinner, it’s likely their account balance is more substantial.
To ensure a fair distribution of retirement funds, the court will consider several factors such as:
- The length of the marriage
- Each spouse’s contribution
- If one spouse paused their career to stay at home with the children
- Future financial needs
There could also be tax implications with the division of retirement funds. Withdrawing funds from a 401(k) before retirement age could incur taxes and penalties. You can avoid those penalties with a Qualified Domestic Relations Order (QDRO) which allows the division of retirement plans without the tax problems. To keep a larger portion of the retirement funds, a spouse may give up other assets, such as the house, investment properties or savings accounts.
Before making any decisions regarding retirement investments, you will need to consider your retirement goals and adjust accordingly. You will also want to review all the retirement accounts and understand the associated terms and conditions. This will help avoid any unnecessary penalties.
You must work with someone who can help you understand the complexities and implications of diving retirement assets. They can also work on formulating a strategy that will protect your financial future.