Your Divorce Could Seriously Harm Your Retirement Plans
Once a marriage ends in divorce, the spouses’ legal relationship ends but the financial effect can follow them years or even decades. Retirement assets accumulated throughout the marriage are considered to be part of the marital estate and so are subject to equitable distribution. Failure to handle these assets correctly could threaten your ability to live your final years in comfort.
During the turmoil of divorce, it’s easy to overlook matters that might not have immediate consequences. Parties just looking to “get things over with” might possibly make harmful concessions. No matter how far you might be from retirement, you should pay close attention to assets such as:
- IRAs and other retirement accounts — Transferring an individual retirement account (IRA) to the spouse you are divorcing does not expose you to tax consequences or penalties. However, the recipient alone will be responsible for taxes and penalties should they withdraw assets prematurely. Funds that are added to a retirement account prior to the marriage are not part of the marital estate.
- Pensions as marital assets — Though you might not collect payments for years, the pension benefits earned during your marriage are subject to division during a divorce under New York law. Public pensions are often allocated by use of the “Majauskas formula,” which gives a pensioner’s ex-spouse one-half of the part of the pension that was earned during the marriage. Other options, such as lump-sum distributions or shares based on the projected benefit amount, are also available.
- Social Security benefits — After a marriage that lasted at least 10 years, an unmarried ex-spouse is eligible to collect benefits based on the former partner’s record of contributions. If he or she has earned benefits that are less than what they would be entitled to as a spouse, payments based on the former partner’s record will be transferred to make up the difference.
In many cases, mediation gives divorcing spouses the ability to resolve complex financial issues such as retirement funding with the aid of a skilled and sensitive neutral third-party. During mediation sessions, each party can speak honestly and pursue creative solutions concerning pension benefits, Social Security and other accounts.
Solutions Divorce Mediation conducts proceedings for Long Island clients who are ending their marriage and seek to resolve financial, custody and other issues outside of court. To make an appointment or a free initial consultation at our Melville, NY office, please call 1.631.683.8172 or contact us online.