Older couples who have spent years together may eventually grow apart from one another. Instead of spending their golden years trapped in a miserable marriage, they may instead elect to pursue a gray divorce.
After years of marriage, divorce can become relatively complicated. The marital estate may include valuable assets accrued over many decades, including retirement savings. Even those who have saved for retirement carefully over the years may worry about diminishing their resources for retirement.
Those concerned about their financial stability during retirement may need to set and focus on specific goals throughout the retirement process. As long as people do not let their emotions get the better of them, it is possible to minimize the negative impact divorce has on retirement resources.
Account division without penalties is possible
A gray divorce could involve people in their 50s who are not yet technically old enough to access retirement savings accounts without consequences. Those who have funded tax-deferred retirement savings accounts, such as 401(k)s, are at risk of penalties and tax consequences for early withdrawals from those accounts.
A qualified domestic relations order (QDRO) can divide retirement savings accounts without penalties. Both spouses generally need to sign the QDRO, and court approval is also necessary. When properly drafted and submitted, a QDRO can eliminate tax consequences and early withdrawal penalties.
Focus on the big picture during negotiations
Emotional reactions to practical matters during divorce can lead to people working against their own best interests. Those trying to preserve their quality of life during retirement generally need to focus on achieving specific goals. Reviewing retirement plans while working toward a property division settlement can help spouses identify ways to ensure a reasonable standard of living during retirement.
A more aggressive investment strategy might be beneficial. Adjusting retirement age could also be helpful. Making use of every available resource is also important. Even after a divorce, dependent or lower-earning spouses might be eligible for Social Security retirement benefits and Medicare benefits based on the higher-earning spouse’s career.
With appropriate preparation and a thoughtful focus throughout the divorce process, people can potentially achieve their retirement goals even after divorcing. Having support while preparing for divorce and managing the division of retirement resources can be beneficial for those concerned about their golden years after their marriage ends.
