After enduring a divorce four years ago, Mike Miller's vision for a golden retirement got an unexpected makeover. Miller had been married for more than 30 years, and now he was single. His longtime dream of a shared retirement was shattered. He was also facing another unwelcome outcome: living in a smaller home and taking fewer vacations.
Like Miller, more Americans are going through so-called gray divorces and the downsizing that follows. The divorce rate in the United States among people 50 or older has doubled since 1990. These divorces can sabotage retirement plans as assets are cut in half and expenses as a divorced single rise.
Spouses over 50 often bring fat pensions and defined-contribution plans to the table, making some settlement fights especially ugly, experts say. But failing to battle for your share can cost hundreds of thousands of dollars more down the road, said Emily Widmann McBurney, a partner at Kegel McBurney in Atlanta.
Experts suggest hiring a financial planner even before finding a good divorce lawyer. These planners can help divorcing spouses navigate a maze of retirement plan laws, make cash-flow forecasts and maximize tax-free distributions.
This financial prowess is needed early in the battle over retirement nest eggs. The inventory of assets that couples make when disclosing their investments is one example. Sometimes, esoteric assets like deferred-compensation plans or stock options may be overlooked or misunderstood in the inventory, McBurney said.
Fights are more contagious around retirement assets, McBurney said. She suggests hiring forensic accountants or other experts, if you need them, to find additional assets, which may be hidden.
Once on the inventory, defined-contribution plans and pensions offered by employers are usually divided by using court orders called qualified domestic relations orders, or QDROs. They may be included in the divorce settlement agreement that splits up retirement plan assets, said Louise Nixon, president of QDRO Counsel.
Taxable issues can also reduce seemingly hefty retirement plan assets. Defined-benefit plans, for example, are usually taxable when a person receives the funds, said Tom Rowley, at Invesco Consulting. These assets aren't taxed, however, if they're put into another retirement account.
Even alimony can be more complicated than it might seem at first. People forget that alimony is taxable, said Jeffrey Landers, a divorce financial strategist at Bedrock Divorce Advisors in New York. And retirement plan assets may be neglected in the battle for present income. Alimony is usually only a short-term income solution, since it typically ends after a former spouse dies.
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Instead, people go after emotional assets like a house, Landers added, even though they may not be able to afford it. Or they just throw up their arms and want to move on, he said.