As divorce rates continue to soar for adults over 50 - particularly for baby boomers 65 and older - many divorcing spouses worry about splitting up their assets. Those with significant assets to protect have misgivings about losing what they worked a lifetime to enjoy.
It's a valid concern. Just when your earning capacity is in its downward trajectory after peak salary years have passed, you face the prospect of living on roughly half of your income. While retirement account or pension benefits could provide a couple with a comfortable lifestyle as they enter their golden years, halving those assets to support two separate individuals can be tight.
For this reason, many baby boomers fight tooth and nail to salvage the most from their retirement accounts. Learn how you can make the most of your nest egg in a property settlement.
Defining the ownership of the accounts
For long-married couples who have been together for decades - often through several career evolutions - there could potentially be multiple retirement accounts to divide in a divorce. If one spouse was the primary wage-earner while the other stayed home to rear the children or worked at lower-paying jobs without retirement benefits during the marriage, the spouse with the pensions can resent having to share these benefits with an ex.
However, the law is clear in this area. Marriages are viewed as economic partnerships, with both parties making vital (if not necessarily equal) contributions to the whole. So when divorce looms, the higher earner in the marriage must accept that a significant portion of his or her retirement benefits will now go to the ex.
The other man in your divorce
No, this isn't about infidelity. The other man here is your good old Uncle Sam. He's got his hand outstretched, too, when the retirement accounts get divvied up. Certified financial planners advise their clients to consider the impact after taxes on any retirement accounts when attempting to valuate them. To do so accurately, you have to consider the tax implications.
Individual retirement accounts and most 401(k)s get taxed when you withdraw money from them. However, if you have Roth IRAs, your contributions are taxed, but after specific retirements have been met, there are no tax penalties to withdraw. When valuating each account, you must factor in the after-tax value to accurately assess its worth.
The real estate over retirement account dilemma
It can be tempting to want to cling to the former marital home after a divorce. This is particularly common when a couple has reared their children in the home and each nook and cranny are full of memories of happier times.
But letting sentimentality overrule good sense during the division of assets is a foolhardy mistake. Trading the value of half of a decent retirement or pension account for full ownership of the family home can be shortsighted at best.
Women are at greater risk of falling into this trap. But home maintenance on a single income is expensive, and you will also be solely responsible for the upkeep. Here in Michigan, that includes snow and ice removal, and for some, dealing with heavy yard work. As you enter your golden years, do you really want to be burdened with those types of problems?
Taking the cash and using it to down-size into a smaller, more manageable property with fewer upkeep issues is often the wiser choice in these situations.
Seek out competent, experienced legal counsel
Whether the divorce was your idea or you are an unwilling participant, it's important to realize that you don't have to go through this alone. Retain a family law attorney who is willing to fight to see that you receive your fair share of the assets from your marriage. This will leave you in the best position to embark on the latest chapter of your life.