Few divorces involve a clean break.
Even fairly amicable splits can sometimes get messy in terms of finances. This is particularly true for older couples and those who have been married a long time, as their property and assets tend to be tightly intertwine and not easily extricable.
As divorces for those who are over the age of 50 are becoming exponentially more common, our Munster divorce lawyers want to stress that the importance of retirement considerations can’t be overstated.
Divorce is undoubtedly going to have an impact on your finances. A recent ING U.S. study found that divorced people overall feel less financially prepared for retirement than their married counterparts. As a group, they’ve saved $11,000 less for retirement.
The disparity is even more pronounced for divorced women than it is for divorced men, with the former tallying about $35,000 less in retirement savings. This might mean an extended career or it could mean scaling back your retirement lifestyle.
However, you have control over the degree to which you are going to be impacted, and a good family law attorney can help to significantly mitigate the damages.
Part of that is proper planning, which is why it’s so important to have your lawyer on board as early in the process as possible.
One mistake that we see too often made is a divorcing party who heedlessly chooses ownership of the home over possession of other assets. There was a time when it might have made sense to make it the goal to seize the home. There may be certain situations where that is still true, depending on the individual home, the property values, etc. However, there may be more value in retirement accounts than in real estate. Overlooking these assets is often done to the detriment of one of the divorcing parties.
Another mistake we often encounter is when an individual is inclined to ignore the tax implications of certain retirement accounts. So let’s say there are two retirement accounts, one a Roth IRA and the other a 401(k), each worth $400,000. It may seem a fair and even split to give one account to one spouse and the other to the second spouse. But what is overlooked in this equation is the fact that Roth IRAs aren’t taxed when the money is extracted upon retirement. The 401(k) is. So in effect, the Roth account is actually more valuable than the 401(k), and this should be given consideration when divvying up assets.
A third pitfall you want to try to avoid is rolling your spouse’s retirement account directly into an IRA immediately once the ink has dried on the divorce. The law allows a singular opportunity for a divorcee under the age of 59.5 to withdraw money from certain retirement accounts without owing the typical 10 percent penalty you would normally pay in taxes. However, you have to make sure that the assets were dispersed via a qualified domestic relations order. A good attorney will ensure that you have this protection so that you won’t be unduly penalized.
Finally, we’ve seen far too many people take out money simply because the divorce tax waiver allows them to do so without penalty. You want to keep in mind that these are funds you’re going to have to live on for decades, and the smart thing to do, particularly as you will be down to one income, is to stockpile as much money as you can while you’re still working.
Indiana Family Law Attorney Burton A. Padove handles divorce and child custody matters throughout northern Indiana, including Gary, Hammond and Calumet City.
Additional Resources:
4 Divorce Mistakes That Can Derail Retirement, Aug. 27, 2013, By Marilyn Timbers, Huffington Post
More Blog Entries:
Indiana Parenting Time Can’t Be “Negotiated Away” High Court Rules, July 20, 2013, Munster Divorce Lawyer Blog