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What to know about divorcing during retirement

With couples choosing to wait longer to get married, it should come as no surprise that the average age people get divorced has also increased over the last 20 years. According to a study by Bowling Green State University, reported by Forbes, the divorce rate of people between 55 and 64 has doubled. The number has tripled for those 65 and older.

Such "gray divorces" often involve more complicated issues, including figuring out how to fund retirement following the break-up. Younger couples who divorce have time to regain their financial footing, even if one of them has been out of the workforce for some time. However, those nearing retirement or already retired do not have the luxury of time. They may face longer years in the workforce, a return to the workforce, or the struggle of trying to subsist on less than they had thought, a prospect no one wishes or plans for.

Dividing retirement benefits in divorce

As a marriage progresses beyond several decades, it's common for one spouse to take over running the financial aspects of the family. The other spouse thus often feels at a disadvantage when it comes to dividing retirement assets such as:

  • 401(k)s and other deferred compensation plans
  • IRAs and Roth IRAs
  • Executive compensation plans
  • Life insurance benefits
  • Profit-sharing benefits

The good news is that you can usually divide these assets in divorce. However, the process can quickly become complicated, especially for those with significant assets or substantial retirement funds. Generally, any assets acquired during the marriage will be divisible in the divorce. This means if you or your spouse started a retirement fund before the marriage, the total value of divisible assets may be less than what the balance currently is.

Restrictions may also apply depending on the type of account. For example, military retirement pay has its own set of regulations when it comes to divorce, as do public pensions for government employees. Additionally, prenuptial agreements can affect whether the account can be included in marital property division.

One solution worth exploring

One option for older divorcing couples is to create a qualified domestic relations order (QDRO). QDROs are legal judgments that allow partners to split up private retirement benefit plans or pensions. There are several restrictions on making a QDRO, so it's important to consult with an attorney who has experience with them.

This is also a good time to review the beneficiaries listed on your retirement accounts. Most likely, your spouse is the No. 1 beneficiary on most accounts, in addition to being listed in your will, trusts if you have them and other estate documents. So, it's important to update your estate plan accordingly to protect your future interests as well as your present ones.

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