You may ask yourself after both a retirement and divorce, what the heck happens next? We’re here to help.
When most of us married folks plan for retirement we assume we will remain a “we.” And then the unexpected happens: your spouse wants a divorce. Just when you thought you had it all figured out, you find that living in two separate households was never on the radar screen.
Or was it and you just didn’t catch the signs?
Either way, your life will be a whole lot different after both retirement and a divorce in good and bad ways if this happens.
First, the bad ways: the division of property will mean you will end up with less than you thought. That’s obvious. But how that division will occur is critical to your financial success. If the divorce happens while you or your husband is drawing a pension, that will mean you can expect the benefit to you to be cut in half. You would have to have your attorney consult with the HR Department of your husband’s former employer to see what options the plan allows for the division of assets under a divorce. It may not be possible to touch that asset once the benefit is being paid out. If you have no other assets to allow you to take an equivalent income (or half of the pension benefit) this could be a problem.
On another front, if he was taking Social Security retirement benefits, you can take an equivalent amount as long as you have been married to him for at least ten years, or your own benefit if it is higher. Usually planners assume Social Security payments as one combined income stream along with a pension payment. You may lose one (the pension payment) but gain another (higher Social Security payment).
And if you have a 401k plan on your own, expect that will be thrown into the pot of marital assets subject to division under a settlement agreement. Okay, so you don’t give up your 401k, but you will have to give him something equivalent in value. Or at least that is where you start.
The cash value of life insurance policies can be a source of assets to consider when adding up the assets available for distribution. If you have a policy or he does, the cash value of that policy can be used to create tax-free income in retirement.
The good news about retirement and divorce? You have an opportunity to start your life all over again. Yes, good news! No need to live in the house you shared for all those years. Consider downsizing and moving to an area where you’ve always wanted to live. Near your children and grandchildren? Remember, they will grow up and leave the nest, too. How about a place you’ve only dreamed you would like to live? A warmer climate? A large metropolitan city, or out in the country? Nowhere does it say the wife has to get the marital house. And if he does keep it, he owes you the equivalent of your share in the current net value of the house (market value minus any mortgage or home equity loans).
Being divorced and being retired does not mean you give up the dreams you had when you planned your retirement, it means you may have to reconfigure them and make them work. Stay strong!
If you need help planning out your retirement, whether it’s after a divorce or not, we’re always here to help. Feel free to contact us at any time so we can get a call scheduled.