Divorce and Your Retirement Funds

by | Oct 19, 2023

If you or someone you know is contemplating divorce, one of the most common questions to be answered is “What’s this going to mean for my retirement funds, my pension, and my future lifestyle?”. To best answer this, start with having a clear understanding of your overall financial picture. This involves identifying all the assets, debts, and financial resources you and your spouse have accumulated during your marriage. However, not everything is necessarily subject to division, so first identifying what should be in the “marital bucket” is critical. Seeking out the services and assistance of a divorce financial professional (such as a CDFA®) early in the process, can make this daunting task not so overwhelming.

The Value of Pensions:

Pension values are often underestimated, but are invaluable assets for securing your financial future.  In Northwest Florida where I live, military pensions are a big part of many individuals’ overall retirement plans. As a retired USAF officer, myself, the guaranteed stream of lifetime payments that I have received every month since mid-2002 has made a substantial impact on my own life. If you qualify of course, it can do the same thing for you, so don’t overlook this key asset.

The Belief That “It’s My Pension. My Spouse Doesn’t Have A Right To Any Of It.”

There is a common misconception in divorce that certain assets, like a pension, belong solely to one person, versus to the family’s estate. A portion of or sometimes the entirety, of an asset and/or debt accumulated during the marriage, even if only titled in one person’s name, may still be considered joint marital property. In a divorce, one of the many important decisions to be made is how to divide all of those items. Part of that decision process is to consider the contributions made to accounts during the marriage, irrespective of whose name is on the account.

Rebuilding Post-Divorce:

All retirement accounts will generally be affected in some way, shape, or form by your divorce, so the next step is to consider how to rebuild them. For older adults, this can be more challenging due to limited time left for additional accumulation. It’s crucial to reassess your financial situation, prioritize your income sources, and make informed decisions about where your earnings should be allocated, to ensure your own financial stability.

The Role of a QDRO:

Qualified Domestic Relations Orders (QDRO’s) play a pivotal role in dividing many types of retirement accounts in a divorce. QDROs are essential for certain types of retirement plans, primarily private employer plans and those subject to ERISA. QDRO’s ensure that funds can be withdrawn without incurring early withdrawal penalties, but tax implications may still apply. The QDRO is to assure that you will be able to access your share of the retirement funds from the community estate.

Divorce can have a significant impact on your retirement funds, pensions, and future financial security. To navigate this terrain successfully, it is important to understand the nuances of asset and debt division, along with the role of QDRO’s and other like orders.

Schedule time to speak with a Divorce Financial Professional who can provide you with expert insights and a clear strategy, from which you can protect and rebuild your retirement funds for a more secure post-divorce future. To schedule a consultation or for more information call (850) 252-6325

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