Divorce after the age of 50 is commonly referred to as gray divorce. Even if you are lucky enough not to yet have any gray hairs, you do not have as long to recoup financial losses.
While the overall divorce rate has held steady in the last decade, the number of over-50 divorces has proportionally increased. Now approximately 25 percent of divorces involve people over the age of 50.
An important part of the initial survive step of divorce is dealing with financial issues and dividing property. You need to do some initial research to fully understand your overall financial situation especially if your spouse handled many of the financial decisions.
Three tips can help protect your finances and keep your retirement plans on track.
Sell the home
After a divorce, you no longer benefit from economies of scale and your income drops. This means cutting expenses. One painful, but often necessary way to do this is to downsize the family home.
Cutting housing costs can even allow you to boost your retirement account. For example, investing $500 extra a month with a 5 percent rate of return over 10 years will give you an additional $77,000 for your retirement.
Retirement account division
Because retirement is closer, consider retirement accounts in terms of sustainable income. This means looking at the taxes.
What are the differences between $250,000 in a 401(k) and a Roth account? The 401(k) has less value, because you will pay tax on all withdrawals. On the other hand, you only pay tax on gains that you withdraw from the Roth.
Valuing pensions and insurance policies are also complicated, but a necessary step in obtaining an equitable property division. Complete transfers as soon as possible, so that you can control investments and access to funds. Also, review beneficiary designations on all your accounts. Updating your will is of no use, if you forget a beneficiary designation that transfers an account outside of your will.
Don't forget the QDROs
You will need to file a qualified domestic relations order (QDRO) for each 401(k) or private sector pension. The QDRO requirements vary based on the type of fund and the company that administers the plan. Forgetting this last step can derail your retirement plans.
Speak with an experienced Texas family law attorney to find out more as it regards your situation.