When you thought about what your life would look like during your golden years, divorce likely wasn’t part of the equation. But sometimes, as couples grow older, they realize they have little in common once their children have left home.
But divorcing later in life can create unique challenges, and the stakes are high. A decision that seems relatively minor during the divorce process can have significant consequences for years to come. Here are some common mistakes to avoid.
1. Focusing only on the value of your assets
Dividing assets is more than just adding everything up and splitting it in half. Before you can divide any property, you often need to classify it as marital or separate.
However, that distinction can become complicated after a long marriage. A couple may have accumulated a home, retirement accounts, investments, businesses and other property over several decades. Some of those assets may have been owned before the marriage or received through inheritance, while others have changed in value during the marriage.
Furthermore, an asset’s value doesn’t always reflect its financial worth. For example, $100,000 in a retirement account isn’t necessarily equivalent to $100,000 in cash. Taxes, withdrawal rules and other factors can affect its true worth.
2. Overlooking retirement accounts and pensions
Many people going through a gray divorce are retired or nearing retirement.
After decades of working and saving, you and your spouse may have accumulated substantial funds in 401(k)s, IRAs, pensions or other retirement benefits. Depending on when and how you earned those benefits, some or all of their value may be considered marital property.
Many retirement accounts require a Qualified Domestic Relations Order (QDRO) to transfer funds from one account to another. If someone tries to transfer the money without one, they could end up paying taxes and penalties for early withdrawals.
Pensions can be especially complicated because their value often depends on factors such as the employee’s years of service, retirement date and benefit formula.
Any divorce settlement should be evaluated both in terms of what each spouse receives today and how the settlement affects each person’s ability to support themselves during retirement.
3. Forgetting about Social Security
Social Security benefits are another important consideration during gray divorces.
In some circumstances, a divorced spouse may be eligible to receive benefits based on their ex-spouse’s work record. Eligibility depends on factors such as the length of the marriage, the person’s age, marital status and their own work history.
Divorce after 50 involves more than dividing what you and your spouse accumulated during your marriage. It may affect your retirement, housing and financial security for decades to come. Before agreeing to a divorce settlement, you need to understand your rights and all your options.