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How does gray divorce impact retirement planning?

On Behalf of | Jun 22, 2023 | Asset Division, Divorce

Longer life expectancy, ever-shifting societal norms or the empty nest syndrome about a newfound marital focus after a grown child leaves home all contribute to the gray divorce phenomenon.

If you are 50 years or older and your decadeslong marriage is on the brink of a breakdown, one of the most urgent concerns you must address is the protection of your retirement plans amid your marriage’s dissolution.

Managing your retirement plans and funds

As a community property state, Washington divides a divorcing couple’s communal assets acquired during the marriage in a just and equitable, but not necessarily equal, manner. For a fair distribution, the court weighs relevant circumstances, such as the community property’s features, duration of the marriage, and each party’s economic situation and separate properties acquired before the marriage. The division must securely position you and your spouse for the remainder of your lives.

Some examples of retirement plans and funds include:

  • 401(k) or 403(b) plans
  • Pensions, including military pensions
  • Traditional individual retirement account (IRA) or Roth IRA
  • Employee Retirement Income Security Act (ERISA) funds
  • Keogh plans

These plans and funds have corresponding rules that govern them. Thus, it is critical to have a legal adviser for guidance and not go at it alone.

Safeguarding your retirement plans and funds

Although retirement planning varies depending on a couple’s economic situation, here are some examples of strategies you can execute:

  • A qualified domestic relations order (QDRO) outlines the payment arrangement of each spouse’s 401(k) and other pension plans. Both you and your spouse may have plans or only one has a plan while the other is a dependent.
  • Although not a cure-all provision, you and your spouse may consider the “incident to divorce” tax code provision for tax-free transfers of your traditional and Roth individual retirement accounts.
  • Freeze or close joint bank accounts until a final divorce agreement is in effect to avoid spending or cash-grabbing. Accordingly, you may open a separate account and remove any unauthorized access.

Even if your child has matured into a self-sufficient adult, these complex financial negotiations may still take a toll on their emotional state. You must consider the possible trauma and how a healthy parent-child relationship will help them heal.

Finding a silver lining in your golden years

Despite daunting financial and emotional uncertainties, the silver lining in your golden years is the freedom to live on your terms. It will help to have a legal team work with you on tailored perspectives and solutions for your financial well-being.