When divorcing later in life, especially after many years of marriage, you'll have to split with your spouse whatever nest egg you've already built and you will have less time to rebuild it. Take the time during the divorce proceedings to create a plan that will limit losses and set you up for a financially secure retirement. When we work with our Bucks County, PA clients who are near retirement, we first establish a set of goals to get the process started. It is important to know that everything in a divorce is up for negotiation and with the right mix of assets, we can ensure you are secure during your retirement.
Types of retirement funds and how they are distributed
The general principle of marital vs. separate property applies to retirement accounts and brokerage accounts just as with other assets: that which was accumulated before the marriage is considered personal property and that which has accumulated after marriage (and before divorce proceedings) is considered shared or marital property. This applies even if an account is in one name. Types of accounts may include:
- 401(k) plans
- 403(b) plans
- Thrift Savings plans (TSP)
- Roth IRA
- Some insurance plans
Ways to protect your funds
Negotiation is your best option. If your divorce goes to court without a negotiated agreement about how to divide the funds, the judge will decide. Pennsylvania is an equitable division state, which means the judge decides what would be an equitable, or fair, division of assets and debt, and you may not like the court's decision on the matter. So it's best to come to the negotiating table with an experienced attorney who knows a variety of possible options to protect your savings.
Your retirement funds were intended to support one household and may not be enough for two. If you want to hold onto as much of your retirement savings as possible, consider a few of these options:
- Instead of dividing your retirement, offer your spouse assets of a similar value. That value does not have to be entirely financial. For instance, if your wife really wants to keep your mortgage-free family home, which is not worth quite as much as your retirement fund would be but really matters to her, you may offer the house in exchange for your retirement fund.
- Consider a combination of assets and a smaller cut of the nest egg.
- If you have brokerage accounts, look closely at the holdings and divide the holdings rather than sell them. By selling, you will have to pay capital gains taxes, but by transferring, you won't pay taxes until you sell.
- If both spouses have retirement funds that are fairly equal, you may be able to avoid any division. Leaving assets alone would allow them to appreciate more, which would benefit both of you, so consider that as an approach in negotiations.
- If possible, offer alternative benefits, such as remaining on your company's health insurance (if your insurance will allow this), remaining a beneficiary in your will, or increased alimony.
- Offer more assets in exchange for alimony or for lower alimony, in order to retain more of your own earnings to rebuild your retirement.
- Negotiate with Social Security laws in mind. For instance, the non-working spouse, even if divorced, will continue to receive Social Security benefits from the working ex-spouse when the time comes. If you are the working spouse, you can remind your soon-to-be-ex about this in negotiation, to calm fears of being destitute without your retirement benefits.
Look closely at your plan's rules to determine what is already laid out in case of divorce. If you need to change beneficiaries, do so. And take an insurance policy out on your ex. This may sound like strange advice, but whether you are receiving or paying support, you'll need the peace of mind.
If you are the spouse paying child support or alimony and your ex is the custodian of your children, you will need help to support the children if something happens to the custodial parent. If you are the one receiving payments, you'll need the insurance policy in case something happens to your ex and payments stop. Even if your ex is required in the divorce agreement to carry life insurance naming you as a beneficiary, you have no control over whether that policy is paid or if the beneficiary is changed. A lengthy legal battle may or may not get you the money that you deserve. Therefore, be safe.
Dealing with finances in a divorce is challenging enough. Saving your nest egg and building it back again can be an even greater challenge. At the Law Offices of Blitshtein and Weiss, P.C., our expertise spans not only family law but probate, bankruptcy, and Social Security law as well. We are in a strong position to help you navigate every aspect of your divorce, including the finances. Call us today at our Southampton, Montgomery County office, (215) 364-4900, for a complimentary consultation.