Can Divorce Force You to Put Off Retirement?

If you are over 50 and considering divorce, you need to know how a divorce could affect your retirement. That’s why it’s so important to work with an attorney who understands how to avoid common pitfalls. Studies have shown that divorced persons tend to have less money saved for retirement than married persons, and that divorced women have significantly less than divorced men. Men contemplating divorce often worry that paying alimony and maintaining a separate residence can force them to put off retirement for several years.

But while it’s no secret that going through a divorce and living separately afterward is more expensive than remaining married, working with an experienced divorce attorney can help you control costs so you can retire on schedule. First, it’s important to avoid financial mistakes during your divorce. These include:

• Opting to keep the house without first doing the math — Your house may be your largest asset, but it may not be the asset most likely to appreciate. If you take the house rather than other financial assets, you can miss out on the growth of a stock portfolio, 401(k) or IRA.
• Ignoring tax implications of asset classes — Not sure whether to take the 401(k) or the Roth IRA? It’s important to understand the tax implications of retirement plans before making that decision: Roth IRA withdrawals are tax-free, but contributions are not; the reverse is true of traditional 401(k)s.
• Failing to take advantage of your qualified domestic relation order’s penalty waiver — There’s a 10 percent tax penalty for withdrawals from a 401(k) before age 59 ½. But if you get a slice of your spouse’s 401(k) under a QDRO, you can make a withdrawal without the penalty. You can use that ready cash to pay for some divorce expenses. If you wait and run into money problems later, tapping the 401(k) will cost you 10 percent extra.
• Taking too much advantage of your QDRO’s penalty waiver — If you’re seduced by the penalty-free funds and draw out too much, you can shortchange yourself when it comes to retirement. A disciplined approach is essential.
• Failing to understand your liability for debt — Demand full disclosure of all debts so you know how much you are jointly responsible for.
• Failing to calculate healthcare costs — If divorce means your spouse’s medical insurance will no longer cover you, you have to research your alternatives and make this new expense part of the discussion.
• Failing to draw up a budget for living expenses — If you go into divorce talks with only a rough estimate of what you need to live on, you are going to be at a disadvantage in discussions and very likely will wind up with less than you need or deserve.

Finally, you can minimize the impact of divorce on retirement by reducing expenses through mediation. But if you have complex finances, make sure you choose a divorce mediator who has experience with high-value marital estates.

If you are contemplating divorce but worry how the process might affect your retirement, Solutions Divorce Mediation, Inc. can help. Call us at 1.631.683.8172 or contact our Long Island office online.