Ending a marriage can impact your finances in a variety of ways. Obviously, hiring a lawyer can be quite costly, but another way in which your finances can take a hit is your retirement fund. If you are in your 20s and 30s and considering divorce, you might not be too concerned about retirement. However, by the time you reach your 50s, you might have a sizable nest egg built up. You may have six figures saved up in an IRA or another retirement plan. If you decide to divorce at this age, you can expect to say goodbye to half of it.
Gray divorces have become increasingly common in the past couple decades. In fact, the rate has doubled since 1990. In the past, if a divorce were to happen, it would likely occur within the first decade of marriage. Nowadays, it is not uncommon for a couple who has been married for 20, 30, or even 40 years to finally say “I don’t.”
While people are living longer and enjoying the single life regardless of age, there are some downsides to divorcing so late in life. One of them is the impact it has on a person’s retirement savings. The closer a person is to retirement at the time of their divorce, the more impact it will have. That is because there is less time to replace the money lost to various divorce expenses and division of assets.
Ways in Which Retirement is Affected
Compared to non-divorced households, the average retirement net worth of divorced households is 30% less. That is because a divorce, especially one that occurs late in life, comes with significant short-term and long-term financial consequences. They include the following:
- Divorce expenses, such as legal fees and court costs
- Having to sell a home, which is often a person’s biggest asset
- Division of assets, including retirement accounts
- The cost of having two households instead of one
- Potential tax implications, since the couple can no longer file taxes as married
- Loss of savings, forcing a person to work longer than anticipated
- Reduction in credit, resulting in decreased credit scores
Protecting Your Retirement
While the average divorce costs about $15,000, the financial implications of a gray divorce are much higher. If you do plan to divorce near retirement age, follow these tips to lessen the damage:
- Stay married for 10 years. If you have divorce on the mind, try to stick it out for a decade. Once your marriage hitz the 10-year mark, you can claim Social Security benefits on your ex-spouse’s work record. This can work to your advantage if he or she earned more or worked for a longer period of time than you.
- Know your rights. If you have little or no retirement savings, you might be entitled to your spouse’s retirement accounts, whether they be an IRA, 401(k), or some sort of pension. Get help from a family law attorney who can help uncover any hidden accounts and advise you of your legal rights. A lawyer can also help you assess your retirement assets so you know what to expect. Advocate for your rights. Never give up or assume anything. You could lose out on tens of thousands of dollars by doing so.
- Try to settle out of court. Being civil can save you a significant amount of money.
It is better to work with your spouse and try to compromise rather than argue over everything and let a judge decide. By deciding on issues outside of court, you control the outcome. Litigating in court is not only costly, but time-consuming. Plus, the judge may make decisions that neither of you likes.
- Decide if you really want the house. While your home may be your biggest asset, it may not be worth it to keep it. With the mortgage comes taxes, maintenance, upkeep, and a huge headache. It may be more cost-efficient to downsize and rent an apartment.
- Do not focus on getting remarried. Among those who have remarried, financial instability remains an issue. You need to focus on saving for retirement and do it on your own accord.
What to Expect Post-Divorce
Now that your divorce has been finalized, what happens next? First, you need to adjust your standard of living. You will not be able to live the same lifestyle on one income. It is time to budget. Find ways to cut costs and save money for retirement.
Expect to struggle with your emotions. A divorce at any age is stressful, and you may need some time off work to attend therapy. This could cause you to take time off work, derailing your retirement plans even more.
You should also expect to extend your time in the workforce. You will see a sharp decline in your retirement assets, which means you may have to work a few extra years to make up for it. Taking on additional jobs temporarily can help you save aggressively for retirement.
Seek Legal Help
Divorce can affect your finances in many ways. If you are in your 50s and 60s and considering divorce, your retirement plans will likely be affected. You will likely need help from a financial planner to get back on track.
Palm Beach divorce attorney Scott J. Stadler can help you understand what to expect financially after a divorce. He can advise you of common financial issues to help you prepare for life after divorce. Schedule a consultation by calling (954) 346-6464.