There has been much attention during the past year about the rise in gray divorces – those splits that occur among couples in their 50s or older. The spike in midlife divorce rates also has sparked concerns among separating couples about retirement. Will they have to delay retirement once the marriage is over? Do they have enough saved to retire comfortably on their own? These are very legitimate questions.
A recent article in Forbes suggests that men and women have somewhat different questions about how their divorce will impact their retirement. Men tend to worry about whether they will have to wait a few years before retiring in order to pay alimony as part of the divorce settlement.
Women, on the other hand, may be limited by the fact that they, on average, earn less money than men. In North Carolina, the average full-time female worker is paid just 77 percent of what the average male makes each year, according to recent labor statistics.
But there are key mistakes that couples make during the divorce that can wreak havoc on their retirement savings, according to Forbes. They include:
- Keeping the house: A home is a valuable asset, but it can become a liability because the upkeep is costly and there are unexpected expenses that most likely will occur at some point. The housing market is also subject to wild fluctuations, which can drive down the value of the home when you try to sell it. By contrast, a solid savings fund can offer a more predictable forecast of the amount of retirement income you can expect to receive.
- Forgetting the tax implications: When you withdraw money from a pre-tax account, such as a 401(k), 403(b) or Individual Retirement Account (IRA), you do have to pay taxes. Not so with an after-tax account such as a Roth IRA, which is not subject to government levies. That means a spouse entitled to a payout from a Roth IRA or similar account will get more money than the one with a pre-tax savings plan.
- Making a post-divorce rollover: There is a one-time opportunity to withdraw money from a divorced spouse’s 401(k) or 403(b) account without incurring the typical 10 percent tax penalty if you’re under 59 ½ . However, that’s only if you have a qualified domestic relations order (QDRO). Make sure to ask your attorney about your QDRO during divorce proceedings. It may save you money to make a withdrawal rather than make the traditional rollover into a different account.
- Taking too much out of the account: It may be tempting to withdraw more money than you actually need to take advantage of the one-time, tax-free opportunity mentioned above. But you should take a long look at your budget and estimated future expenses before dipping into that money prematurely. Remember, it’s what is left to sustain you for the next 20-30 years.
If you’ve got questions about retirement or other aspects of asset division during a divorce, the experienced attorneys at the Raleigh law firm Charles Ullman & Associates can help. Just call 888-975-0461 today or use our online form to schedule a consultation in our Raleigh or Cary offices.