How to protect retirement assets when facing a divorce

This article looks at how to protect retirement assets during a grey divorce and why having an attorney matters.

Divorcing later in life can be an intimidating prospect, but one that many more people are now facing. As Time reports, the divorce rate for Americans aged 50 and over is now double what it was in the early 1990s. This so-called grey divorce boom means that many people are facing the daunting challenge of going through a divorce while also getting ready for retirement. Below is a look at how to protect retirement assets when dealing with a gray divorce.

Dividing pensions properly

Pensions, IRAs, military benefits, and 401(k)s can usually be divided between both spouses during a divorce, but it is extremely important that the right paperwork be filed when doing so. In terms of private pensions and 401(k)s, a legal document called a Qualified Domestic Relations Order (QDRO) will be required to transfer funds from one party to another. As Reuters points out, transferring funds from a 401(k) or pension into another retirement account without a QDRO could result in hefty taxes and extremely high early withdrawal fees. A QDRO largely allows divorcing spouses to avoid these penalties.

Selling the house

Deciding what to do with the family home is rarely an easy decision during a divorce. Not only is the house an important financial asset, but it is often a sentimental one for both parties. However, while keeping the home may sound like a financial 'win' on paper, the cost of maintaining a property that was designed for two (or even more) people on a reduced income is likely to be challenging. In many cases, the best option is to sell the home or trade one's stake in it for an asset that provides more long-term income.

Don't forget about Social Security

Spousal Social Security benefits don't end with divorce. For those who have been married for more than 10 years, it is often possible to receive spousal Social Security benefits equal to 50 percent of what one's ex-spouse will receive. Those benefits can be claimed when one turns 62. Keep in mind, however, that there are restrictions, especially for those who remarry, and different rules apply for retirement versus disability benefits.

Family law help

While a do-it-yourself divorce is a bad idea in almost any situation, it is especially bad during a gray divorce. Not filing the proper paperwork or not understanding what one's legal rights are could lead to huge financial penalties that will make retirement far less comfortable. That's why anybody going through a divorce later in life should reach out to a family law attorney right away. An experienced attorney can help clients understand what steps need to be taken to protect both their assets and their best interests moving forward.