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How to Plan for Retirement & Divorce

Latrice Milton Knighton Attorney At Sterling Law Offices 150X150 1

Latrice Knighton is an award-winning divorce attorney, life coach, and speaker. She solves problems using her experience and legal knowledge to offer practical advice.

Jun 14, 2021

Ever since the 1950s there has been a significant increase in the rate of divorce with 66% of them being initiated by women. The highest chance of getting divorced is for those who are 45 years of age or older. From this trend, it is important to understand your financial standing as people get divorced at the cusp of retirement. Without preparation, there is threat to retirement security.

Kevin Reardon, of Shakespeare Wealth, is a certified personal financial planner and is here to explain the financial implications of divorce and how it might affect your goal of retirement.

What are the first steps I can take in order to ensure my financial stability during a divorce?

One of the first things that should be done to account for your financial assets before and after a divorce is to take inventory of assets such as retirement accounts, bank and brokerage accounts, mutual fund statements. The next thing that can be done is look at income and analysis it from current income sources (wages, marital support, etc.) and future income sources (social security and pensions).

What noteworthy tips can be said about asset division of retirement accounts?

In regards to IRAs, 401(k)s and 403(b)s, there are two tips that are important to know:

  1. Do not transfer or divide any assets without written direction from your divorce attorney. Rely on the divorce decree/QDRO to transfer assets. This is because there may be irreversible tax implications without the decree.
  2. Never attempt to shelter/hide assets or income before, during, or after divorce. They're typically found out about.
How does divorce impact my financial placement?

Divorce impacts a person's savings and their ability to save. This is because when getting a divorce there is a split of assets from one household into two which results in fewer assets per household. Not only is there a split between assets, but if a person came from a duel income home they will not have access to those funds post-divorce. Instead, there is only one income – yours – that is relied upon for all expenditures. With that in mind, it is important to control spending in order to continue and maintain the same savings rate post-divorce that was set beforehand.

What are the implications towards the family dynamics post-divorce?

Maintaining a family home after divorce usually creates financial strain. Children will be more impacted by current and future financial constraints than by moving into a less expensive home.

What are the financial building blocks towards financial stability?

The most important aspect is paying yourself first through your savings. An easy way to do this is by having an automatic investment plan such as a 401(k). It's recommended that a person contributes at least 15% or more of income into their savings account each pay period. Another key point is to have a month budget to quantify spending and ensure there is no spending deficits. An emergency fund that covers three to nine months of expenses is also advised since it cushions  unforeseen events. The big picture about these financial aspects is that you need to identify the most important thing in your life and focus on it and achieve it by using delayed gratification.

What documents should I revise after divorce?

Beneficiary designations are legal documents that trump what's written in a Will. It is advised that you complete a new beneficiary designation immediately upon divorce. Many ex-spouses have been awarded money because of pre-divorce beneficiary designations that have not been updated.

How should I plan Social Security and what should I expect during divorce?

If a marriage has lasted less than 10 years, you can only claim benefit on your own earning's history. However, if the marriage has lasted longer than 10 years, you get the great of half of you ex-spouse's benefit or 100% of your own benefit. It is worth noting that more than one ex-spouse can receive benefits on the same workers record and benefits paid to one ex-spouse do not affect those paid to the worker, current spouse, or other ex-spouses. With this in mind, the worker is not notified that an ex-spouse has applied for benefits and if the divorced spouse remarries then the benefits stop.

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