How to Plan for Retirement After Your Divorce
August 20, 2019
Your finances will probably be one of the complicated parts of a divorce in Maryland. Just like your family, your investments have a future — one that should be carefully considered. Please remember this is not legal advice. Your retirement strategy should come from a detailed analysis of your unique situation.
Having a comfortable retirement after a divorce is often an attainable goal. Once people grow accustomed to their new routine after their divorce, people often find the final combination of lifestyle change, support agreements and property division results in a minimal impact.
Many of your worries may be unfounded. For example, you are likely already aware of the tax benefits for your retirement accounts and of the various penalties for early withdrawal. A goal should be to not worry about offsetting these penalties during division.
What Is a QDRO?
Divorce is a special case where courts can issue a qualified domestic relations order (QDRO). These orders direct account administrators to take actions that would negate your tax obligations. This can be confusing in theory, but it is quite simple in practice.
From your perspective, not much will change other than account totals. A QDRO simply gives you or your spouse access to some of the funds in the other’s account without incurring the early withdrawal penalties or taxes. You might even have a choice to roll the funds over into the receiving spouse’s retirement account.
The type of retirement plan would also matter. These orders usually take effect immediately for defined contribution accounts, like IRAs or 401(k) plans. In contrast, they would probably be delayed until a defined benefits plan, such as a pension, started paying.
How Do You Divide Retirement Accounts?
Before you get a QDRO, you would probably have to determine the amount of your retirement accounts that consisted of your own private property. For example, you could probably keep the portion you contributed before your marriage. Since these are not simple value storage, you would probably want to have an accountant look at both yours and your spouse’s accounts to determine the exact amounts to which each of you might be entitled.
What if You Are Getting Divorced in Retirement?
If you are already retired or very close to retirement, things may be different. You may have other concerns apart from the standard retirement accounts, such as social security, Medicare and health insurance. As with other retirement planning and divorce issues, this might not be as complicated as it seems at first.
Navigating the financial side of your divorce does not have to be stressful or confusing. You can probably find a solution for every conflict or challenge you encounter — if you know all of your options. Please call Law Offices of Sandra Guzman-Salvado at (301) 340-1911 to schedule your initial consultation today.