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Divorce and Retirement

Joseph Coupal - Wednesday, November 01, 2017

Walsh Law Office, Hyannis, MAEven if your divorce happens decades before you retire, your retirement savings will likely take a major hit. First, a divorce usually means that the funds in your retirement accounts are divided between yourself and your ex-spouse, so your retirement savings will shrink substantially. And second, divorce means that you'll at least temporarily become a one-income household -- so you'll probably end up saving a lot less for retirement than you had planned, at least in the near term.

Splitting your retirement savings

State and local laws determine how your retirement savings gets divvied up between you and your ex-spouse.

Massachusetts uses "equitable division” to figure out who owns what after a divorce. Under the concept of equitable division, it's up to the judge to decide the fairest way to split the divorcing couple’s assets, including retirement. Judges generally consider factors like how long the marriage lasted, each spouse’s contribution(s) to the marriage, age, health, and so on.

Protecting Your Retirement Savings

Given the way in which courts divide assets in a divorce, the question becomes how can you best protect your retirement savings? The surest way to protect your retirement savings is to set up a prenuptial agreement that specifies who gets what from the retirement accounts should your marriage end. If you don't have a prenup, your best bet is to try to come up with a compromise with your spouse that will work out to your mutual advantage. If you cannot reach an agreement with your spouse, having your lawyer make a compelling argument for the judge can help you to get a favorable decision in court, but it's definitely not a sure thing.

Building a new plan

Once you know how much of your existing retirement savings you'll get to hang on to, it's time to draft a new retirement plan. You'll need to factor in both the reduction of your existing savings and (most likely) the reduction of your future income. On the other hand, now that it's just you, you'll probably be able to set a lower goal for how much income you'll need in retirement.

For more information on divorce and retirement, contact Allison Walsh.

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Dividing the Assets in Divorce

Joseph Coupal - Tuesday, October 24, 2017

Walsh Law Office, Hingham, MAIt might be the only thing the two sides in a divorce can easily agree on: it's no fun.

On top of the emotional toll, financial missteps during the process can leave you in far worse shape than you intended. And the more intertwined you and your spouse's finances are, the more closely you'll need to pay attention while untangling them.

Ideally, you'll have a divorce attorney and a financial advisor who are advocating for you. Nevertheless, experts say that even if you'd rather spend as little time as possible thinking about the divorce, it's worth making sure you understand the implications of all financial decisions being made.

You are your own best advocate.

If you are among those getting divorced, here are some financial mistakes to avoid.

1. Keeping a home you can no longer afford.

While staying put means one less change in the midst of an already life-altering event, it often makes little financial sense.

Unfortunately, many keep their homes not realizing that upkeep costs are no longer sustainable. There are now two households existing on the same income where previously there was only one.

2. Not considering the tax implications.

Not all financial accounts are taxed the same way.

For instance, if you get the 401(k) plan account worth $100,000 and your ex gets the checking account worth the same, you just got the raw end of the deal. Taking cash from the checking account incurs no tax, while any withdrawals from the 401(k) would be taxed as regular income to you. Most individuals forget to look at the complete cost of each asset, particularly the tax nature of each.

3. Not getting a court order to get your piece of the 401(k).

If your soon-to-be ex has a 401(k) plan, you must have what's called a qualified domestic relations order, or QDRO, to access your share. (Individual retirement accounts do not require a QDRO). This court order, which must get final approval from your retirement plan, marks one of the few times you can take money from a 401(k) without paying a 10 percent early withdrawal penalty. You will, however, pay income tax on the amount if you don't roll it over to an individual retirement account within 60 days.

For more information on dividing financial assets, contact Walsh Law.

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