Divorce is never easy, but it can be particularly complicated when you are over the age of 50—a demographic whose divorce rates have doubled over the last 20 years. A recent cnbc.com article (“Divorce after 50: It’s complicated, especially if retirement is near,” October 2014) takes a look at the financial details to which you should pay close attention.
Divorce laws differ by state, so retirement assets, such as a 401(k) or pension, are not necessarily split down the middle. Care should be taken when attempting to divide those assets; in order to divide a 401(k) or pension plan tax-free, get a court order for a “qualified domestic relations order” (QDRO), which determines the share awarded to the non-employee spouse by the plan administrator. QDROs are not required for dividing IRAs or SEP IRAs.
A couple’s home is one of the most tax-efficient retirement assets. It is important to understand the tax implications of selling a home before and after a divorce.
TIAA-CREF provides tips for ensuring your finances are in good shape after you divorce. One of the most important things to do after a divorce is to ensure you have an adequate emergency fund—typically enough money to cover three to six months of expenses. You may need to rebuild your retirement nest egg—particularly if your 401(k) was split as a result of the divorce settlement. In order to make up this lost ground, you may need to be more aggressive in your saving. Funding retirement for two single people is often more expensive than for a married couple.
If increasing the amount you are saving is not feasible, it may be necessary to reassess the kind of retirement lifestyle you’ve been planning. Delaying retirement or even getting a second job to add more to your savings should also be considered.
Insurance coverage is another item to reassess after a divorce. If you were covered through your spouse's workplace plan, you can continue to receive this coverage through COBRA (you’ll have to pay your own premiums), or you can sign up for your own employer’s health plan, if that is an option. It’s a good idea to review your other types of insurance as well, such as life insurance and disability insurance.
After a divorce, it’s important to review and update your asset and beneficiary documents. This is an important step in making sure your assets are passed on to the heirs of your choice. A financial advisor can help you adjust your retirement and overall financial plan based on your new circumstances.
This material is for informational purposes only and the statements made above represent TIAA-CREF's interpretation of applicable law. It is presented with the understanding that TIAA-CREF (or its affiliates, distributors, employees, representatives and/or insurance agents) is not engaged in rendering legal or tax advice.