Gray divorces, or divorces among couples over the age of 50, are on the rise in Texas and across the United States. In fact, the Pew Research Center reports that these types of divorces have doubled since the 1990s. However, they can present special financial challenges, particularly in the area of retirement plans.
Because individuals going through gray divorce are getting close to retirement, there is little room for error when dividing up assets. High-earning couples could own multiple pensions, 401(k)s and annuities, which could complicate matters. As a result, financial experts say that it’s essential for such people to obtain quality legal, financial and tax advice before dividing things up.
Some couples try to split retirement plans on their own or simply agree to a 50-50 split during a mediation session. However, asset division is rarely that simple. For example, pensions and 401(k) plans require a qualified domestic relations order, or QDRO, which grants the account owner’s ex the right to receive his or her share of the plan. QDROs also allow a one-time penalty break for divorcees, allowing them to pull out some cash without being slapped with a 10 percent early-withdrawal penalty. However, QDROs don’t apply to IRAs. Instead, plans for IRA division must be included in the divorce decree and submitted to the IRA custodian. Meanwhile, all these moves have important tax implications that could cause problems if not fully understood.
Individuals going through a high asset divorce could benefit from contacting an attorney as soon as possible. An attorney could arrange for a full asset valuation and explain the best way to divide retirement plans, pensions, business assets and other marital property.
Source: Kiplinger, “Dividing Your Assets in a Gray Divorce“, Mary Kane, Aug. 2, 2018