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Divorce gets more complicated the closer you are to retirement. Since you’ve had more time to build your retirement nest egg and accumulate other assets, there are more issues to work through. Here are a few points to consider as you rebuild your financial plan.
After the divorce, one of the first moves should be to review your estate plan. This is the plan for who will inherit your property after you die. A faulty estate plan is a more costly mistake now than when you were younger because you most likely have more money saved.
It isn’t uncommon to discover that your ex-spouse may still be set to inherit most of your property. If you want someone else to collect your inheritance, be sure to update your will and the beneficiary information for your life insurance and retirement plans.
During the divorce, it is important to ensure you get your fair share of all retirement assets as you’ll have less time to save money after the divorce. Your lawyer can help you with a Qualified Domestic Relations Order (QDRO) that can be issued through your divorce agreement. With this document you’ll be able to move money out of your soon-to-be ex-spouse’s retirement plans into your own plan without owing taxes.
One retirement benefit that is often overlooked is a pension. If your spouse has a pension at work, you are entitled to part of that money even if they are still working. During your divorce proceedings, your lawyer or financial planner should be able to help you with determining a fair value on the earned pension benefit. The options could include transferring half of the money from the pension into your own retirement plan through a QDRO or giving you an equal share of other property.
Some divorcees might qualify for spousal Social Security when they turn 62. Even if you weren’t working during your marriage, you could still be entitled to receive Social Security because of your ex-spouse’s work. To be eligible for spousal Social Security, you must have been married for at least 10 years. It is also important to understand that if you remarry, you can no longer collect Social Security from your ex-spouse’s benefit.
You could start receiving spousal Social Security as soon as you turn 62. It doesn’t matter if your ex-spouse hasn’t turned 62 and/or is still working. As long as you’re eligible for spousal Social Security, you could start collecting at 62.
While younger divorcees are sometimes better off not keeping their primary residence, this could be an asset to consider fighting for now that you are closer to retirement. Your house becomes a more valuable asset as you get older for a few reasons.
First, you’ve likely paid off more of the property so it’s more of an asset and less of a liability. Many states also reduce taxes on properties for older taxpayers so owning your home will become less expensive. Finally, once you turn 62, you are able to set up a reverse mortgage. Under a reverse mortgage, you stop making payments on your home and start receiving money from the bank as they pay out your home equity. This can be a helpful retirement benefit. But it’s also one with potential pitfalls – so consult your financial advisor and do your research.
It will be important to rebuild your financial life as quickly as possible after divorce when you are over 50 and closer to retirement. These are just a few things to keep in mind as you proceed. Divorce is never easy, but we hope this information useful in helps you better understand what questions to consider with your financial advisor or lawyer.
This article is a high-level summary of financial considerations during divorce, is for information and educational purposes only; does not necessarily represent the opinion of Protective Life; and, is not intended to serve as financial planning for preparing for divorce when nearing retirement. The article is meant to supplement other information specific to your situation. Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your legal or tax adviser regarding your individual situations before making social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.