Divorce can be emotionally messy business.
However, our Phoenix divorce lawyers know that absent proper planning, the whole process can quickly unravel into a serious financial mess too, particularly if you are nearing retirement age. In fact, a poorly-planned divorce could even derail your retirement completely.
The U.S. Census Bureau says that between 1990 and 2010, the number of divorces among individuals aged 50 and older has doubled. By 2010, one in four divorces involved at least one party who was over the age of 50.
It’s called the “gray divorce,” and there are many theories as to why it’s happening. Part of it is the product of longer life spans. Some of it is the product of more women being financially independent.
Regardless of the reason, it can be economically devastating for certain folks – particularly women who may have been out of the work force for several decades in order to raise their children.
Divorce in general forces both parties to reduce incomes, work more years than previously planned or require you to get a part-time job through your retirement.
A recent study by ING U.s. found that people who are divorced are less likely to feel financially prepared for retirement, as compared to couples who have remained married. On average, divorced individuals say they have saved $11,000 or less for retirement. On average, ING found that women had $34,000 less than men in total retirement savings.
Men, on the other hand, have had to delay retirement as they dip into savings to cover costs for court-ordered alimony or certain household expenses for their ex-spouse.
Certainly, divorce is going to have a negative impact on your finances. But our experienced family law attorneys are well aware that there are numerous ways to minimize that impact.
First, one mistake many people make is heedlessly choosing the house over other financial assets in a divorce settlement. A lot of people simply assume that a house is one of the best assets to maintain in a divorce, but this isn’t always the case. When you compare it to, say, retirement savings, a home may have less value when you consider the ongoing and sometimes unexpected expenses of home ownership. Plus, you don’t know whether that home is going to retain its current value. A house may not allow you the financial return necessary to fund your retirement.
A second mistake too many people make is ignoring what may be the tax implications of retirement funds. For example, let’s say one spouse is given the $450,000 401(k) while the other party is given the $450,000 Roth IRA. On the surface, it seems equal. It’s not because each is taxed differently, and in the end, the Roth IRA is going to result in bigger returns.
Finally, far too many people make the mistake of withdrawing too much from their retirement funds before they actually retire. Bear in mind, if you are 50 years-old, you are going to need these funds to live on for the next 20 or 30 years. “Borrowing” a little here and there has the potential to significantly impact your future lifestyle.
The best way for divorcing parties to prevent significant havoc on retirement futures is to plan well in advance with the help of an experienced Arizona divorce lawyer.
Contact our Mesa family law attorneys at (480) 833-1113.