RETIREMENT TIPS: Divorce and Finances

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By ALAN KONDO, CFP, CLU

Divorce can be a complicated and challenging process in which details are easily overlooked. It is important to know the laws that shape divorce proceedings and to understand the impact they have on your assets. This is especially true for those aged 50 and older.

Why? This group is getting divorced at a greater rate than other age groups. In fact, according to a recent study, the divorce rate for those aged 50 and older has doubled since 1990.¹

Assets

Typically, everything you and your spouse acquired from the day you were married is subject to division. Exceptions include individual inheritances, gifts to an individual spouse, and assets acquired before marriage. When assets are divided, the court considers each spouse’s earning potential, the length of the marriage, and each spouse’s contribution to building household assets.

The exception to this is the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under the laws of these states, almost all assets are divided equally.

Debt

If you live in a community property state, debt, like your assets, will be divided with your former partner. You will be responsible for half of all debt in jointly held accounts and, in some cases, half of a former spouse’s debt as well.

If you do not live in a community property state, you remain responsible for your individual debt (but not your spouse’s) and any debt in jointly held accounts. Many couples include debt payment as part of the settlement.

If you and your spouse own a home that has appreciated in value, consider whether you want to sell it before the divorce is finalized. Federal tax rules offer an exclusion of up to $500,000 in realized capital gains for married taxpayers. This amount is cut in half for single filers. Be sure to consult a tax advisor for additional information about these rules.

Retirement Assets

Money in your defined contribution or pension plan may legally be divided during a divorce. The divisible amount begins to accumulate on the day you are married and ends on the day you are divorced.

To claim a share of a spouse’s plan benefits, you need to obtain a court order called a Qualified Domestic Relations Order (QDRO) and provide it to your spouse’s plan sponsor before distributions are completed. You and your spouse have the option of deciding to not divide retirement plan assets. Note that traditional and Roth IRAs do not have to be covered by a QDRO, but should be addressed in any settlement.

Estate Planning

You may want to review your will as it may be beneficial to review and amend your estate plan at the same time you commence a divorce proceeding. Also review beneficiary designations for pensions, retirement plans, and life insurance policies.

Social Security

A divorced woman is eligible for Social Security benefits based on her ex’s earnings record if she meets all of the following requirements:

• She is at least 62 years old.

• She was married for at least 10 years.

• She did not marry someone else before age 60.

In order for a woman to file for spousal benefits before her ex does, she must be at least 62 years old and they must have been divorced for at least two years.

If you find yourself faced with divorce, it is essential to protect your financial future. Enlisting the help of an attorney and carefully monitoring the process can ensure that your interests are considered and that you will not need to revisit the proceeding at a later time.

The information in this communication is not intended to be legal or tax advice and should not be treated as such. Each individual’s situation is different. You should contact your legal and/or tax professionals to discuss your personal situation.

¹ The National Center for Family and Marriage Research at Bowling Green State University, “Divorce in Middle and Later Life,” March 2012.

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

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