Gray Divorce: Divorcing During Your Golden Years

Posted by: Gerald A. Maggio, Esq.

Orange County divorce attorneys; The Maggio Law FirmDivorce among seniors may not be talked about as much, but it is more common than you would imagine. Stepping into retirement, you may find time on your hands, but you may also discover that you and your partner have drifted apart. With the children long flown from the nest, you now have the independence to make this decision to live out the rest of your days as you desire. Here’s what you need to know about divorcing in your golden years.

Retirement Savings

Worries about your 401(k) and other retirement plans become more immediate when you go through a divorce after retirement.  Be sure that your divorce attorney is familiar with working on QDROs or Qualified Domestic Relations Orders. This separate court order deals with how retirement benefits are split during a divorce.

Be sure to involve your retirement plan administrator so you fully understand the terms of your plan. Learn about tax penalties as well as breaks on these penalties, check on survivor benefits and whether those hold even post divorce, find out if you can take a hardship withdrawal when needed, whether you have entitlements on contributions made post divorce, and get clarity on other specific concerns you might have.  For civilians that had a spouse who served in the military, also find out if the military retirements benefits you had been getting when you were married will continue as part of the Survivor Benefit Plan.

Don’t forget to check if your spouse has loans on the 401(k) that will need to be paid off before the funds can be split.

Social Security

With things like Social Security, the rules are fairly clear cut, with details available on the SSA website. For marriages that are 10 years or over, where the surviving spouse is 60 plus, and the survivor’s own retirement benefits are lower than their spouse’s, they become eligible to receive survivor benefits of 100% against their ex’s Social Security benefit. While both partners are alive, for those aged 62 and up, you are eligible to get as much as 50% of your ex-spouse’s benefit without impacting their benefits.

Your Home

Divvying up proceeds from the sale of the family home or deciding which spouse gets to keep it can play out differently when you’re 50-plus. As you grow older, you get certain tax breaks from the government which could be a game changer. Exclusions from gains when you sell the home, as well as deductions on mortgage interest will also be critical factors when you’re a senior.

You also could potentially earn rental income by letting out your home, if you choose to move into a smaller place or a nursing home. After 62, you become eligible for a reverse mortgage that can get you an additional income stream. For anyone qualifying for receiving public benefits like Medicaid, having a primary residence works in your favor.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.

What Happens to Your Retirement Savings In A Divorce?

Posted by: Gerald A. Maggio, Esq.

Orange County divorce attorney; The Maggio Law FirmRetirement assets are often the single biggest asset for many divorcing couples today, and if enough attention isn’t paid to the small stuff – the consequences can be dire. Here is what you must know before you sign off on an agreement or settlement with your soon-to-be ex.

QDROs: The earlier the better

A Qualified Domestic Relations Order (QDRO) must often be drawn up to divide key retirement assets and avoid tax implications in the division of such assets.  In case your divorce is finalized before this has been agreed to, you may later discover that something you had banked on in is not implementable and you have no recourse since the divorce is now final. For instance, if you hope to get a lump sum payment from their pension plan, but discover that the plan won’t make a single big payout and will instead draw out payments across several years, you may find yourself stuck without the money when you need it. And you won’t be able to rework the plan to get other assets in lieu of this either.

The devil is in the details

One common error is to look at the account at current market conditions and define a set dollar value that a partner gets without mention of market or earnings/losses impact. Later, if the account is worth much less (or more) at the time of maturity, it could result in one of the two getting more (or less) than their fair share. For instance, an account with $250,000 dollars today with the wife due to get $125,000 might seem fair. However, if the account is suddenly down due to the volatility in the economy, the entire account may only be worth $150,000 and she will end up with $125,000 and her partner with a paltry $25,000.

Consider tax implications

It is important to look at the tax implications of whatever agreement you finally come to. Work with a financial consultant if need be, or better yet, hire an attorney with expertise in this area.  An IRA division for example, will have to be specifically labelled in the agreement as a transfer incident to divorce, to avoid tax on the transaction. If you don’t you and your ex may end up owing taxes in addition to an early withdrawal penalty in some cases. And all to fund your ex’s share of the money.

Hire the right divorce attorney

Not all divorce attorneys have the time to focus on retirement assets, because much of their attention will be geared towards handling what they see as bigger issues like child custody or spousal support negotiations. For instance, they will need to be well versed with QDRO law.  This will mean they need to have expertise in drawing up agreements on things like pensions and 401 (k) as well as other retirement assets. They should be able to distinguish between the nuances of both. While the former will involve looking at things like what pension they will draw as a surviving spouse, the latter may have to factor in market losses and earnings.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.

No Legal Advice Intended: This website includes information about legal issues and legal developments. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You should contact an attorney for advice on specific legal problems. Full disclaimer.