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A 'gray divorce' could be costly to your retirement plans

For Americans over the age of 50, divorce has become more and more prevalent. These middle age dissolutions of marriage-sometimes called "gray divorces"-have doubled since the 1990s, and they're often unique from their younger counterparts.

While the issue of contentious child custody is usually absent, the dividing of assets can be much more complicated in a gray divorce. A couple is who has been married for 20-plus years could have numerous significant accounts, including retirement funds, which are likely pivotal to their remaining years. Dividing retirement assets can not only be costly, but the aftermath can also mean a serious shift in your retirement plans.

Preserving your retirement and your future

A gray divorce, like any divorce, is going to cause upheaval in your life. Relocation could be necessary as a result of the separation of property, and there is certainly a degree of emotional distress that comes with such a dramatic life change. Beyond that, however, is the likely alteration of your financial picture.

If you're nearing retirement, or you've already settled into it, divorce could mean living on half the income you anticipated. Luckily, there are a couple tactics that could better position you for retirement after a divorce:

  • Get a Qualified Domestic Relations Order (QDRO). A QDRO is necessary to divide non-IRA retirement accounts, and without it the funds you receive from an ex-spouse's pension could be treated as taxable income.
  • Do not transfer anything from your IRA until your divorce is final. Distributions made from an IRA in the absence of a divorce decree are susceptible to taxation.
  • Be mindful of taxes when negotiating a settlement. Different assets have different tax implications, and $200,000 of a retirement plan is not the same as $200,000 in the value of a home. Also, be sure to calculate the after-tax value of each asset in the divorce.

Other financial considerations in a gray divorce

Getting divorced later in life can often mean retiring later than you would've liked. For instance, if one spouse is near retirement, but suddenly has to pay alimony to another party, that could upend their plans. As you age, the need for long-term care could also become a costly reality. Single people who lack a spouse to care for them often face greater long-term care expenses, further jeopardizing the security of their retirement.

With many aspects to consider and plan for, someone entering a gray divorce could be wise to consult with an experienced family law attorney. When something as valuable as one's retirement is at stake, additional foresight and guidance could go a long way.

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Law Office Of JAMES H. SNYDER, JR.

James H. Snyder Attorney at Law
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