Written by Jonathan Breeden
Whether you’re a higher-earning spouse or a stay-at-home parent, getting divorced can negatively affect your retirement.
According to a survey by Fidelity Investments, one-third of divorced individuals reported financial struggles five years after ending their marriage. While you shouldn’t stay unhappily married for financial reasons, you should plan now to minimize the impact of divorce in later years. We’ve compiled financial strategies to help stop divorce from ruining your retirement. Keep reading to learn more, and consult a divorce attorney if you have any questions.
A divorce takes a toll on your heart and your bank account. The longer the marriage, the more significant the potential impact on both spouses’ pensions, retirement plans, and 401(k)s.
There are also moving costs (if you’re not staying in the family home), deposits, attorney fees, and other divorce-related expenses. When one household becomes two, the bills double as well.
Money.com suggests the following to help you financially get back on your feet.
Both spouses should recalculate their budgets and set money aside for retirement or emergencies. The spouse paying child support (and possibly spousal support) will notice a reduction in their monthly income. The spouse receiving these benefits might be surprised by how expensive it is to take care of kids and the home on a single income, even with financial support.
After a divorce, we’ve all heard horror stories about people getting in too deep with multi-level marketing companies and other high-risk businesses. But the older you are, the less time you have to recover from risky investments.
Talk to a financial planner about solid, moderately conservative options to rebuild your portfolio. Money-making opportunities that sound too good to be true are usually scams.
The more you pay into Social Security, the greater the payout when you retire. Individuals who retire at 62 receive 75% of their benefits. People who retire at age 65 get 100%.
You could earn delayed retirement credits if you opt to keep working until age 70 (health permitting). This additional time in the workforce could add to your monthly benefits when you stop working.
Stay-at-home parents work hard, but unfortunately, they don’t earn a paycheck. Without income, they don’t accrue Social Security benefits.
If you haven’t worked outside the home in several years, you might need to complete or update your education and training. Keep in mind that a critical benefit of spousal support is to help you financially while you prepare for paid employment.
You could be eligible to receive Social Security benefits from your ex’s employment history. This benefit is for individuals married for ten or more years, and certain income limitations apply. Still, it’s worth finding out if you may draw Social Security benefits through your former spouse.
If you don’t have a pension because you sacrificed your career for your family, it’s time to establish an individual retirement account (IRA). You can roll over your spouse’s pension fund assets into an IRA without a tax penalty.
Everything in your shared assets must be divided equitably under North Carolina law, including your spouse’s 401(k)s and other retirement plans.
Spouses with a higher income and benefits might be able to protect the bulk of their retirement. Instead of giving your former spouse half of your 401(k), offer assets of equal value. The law requires an equitable distribution of assets; how you arrive at a fair division is negotiable.
Some couples don’t want to sell the house, especially when children are involved. Not only is the marriage ending, but leaving the only place they’ve lived seems excessively traumatic.
However, if the stay-at-home parent becomes the primary physical custodian, remaining in the house is often too expensive. The spouse paying alimony and child support might not be able to afford it either.
Set your emotions aside and view your home critically. Get an appraisal to see how much you could realistically sell it for. Then, consider what repairs or upkeep you might have in the next few years.
No one can decide for you but talk to your lawyer, financial advisor, and even a real estate agent to make an informed decision.
Protecting your retirement in a divorce begins by working with an attorney who encourages you to negotiate and mediate. You and your ex have a better chance of saving money if you reach an agreement instead of letting a judge decide. If that’s not possible, all the more reason to have a dedicated legal advocate fighting for your fair share.