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Beware these issues in a 'gray' divorce

Many couples look forward to time together once the kids have left the nest, or traveling in tandem once they have both retired. Yet some spouses cringe at the thought of spending their Golden Years with their partner.

A growing number of people in their 50s and 60s are opting out of unsatisfying marriages. But getting divorced at or near retirement has potential pitfalls. Untying the knots of a long-term marriage can have major implications for finances, taxes and retirement savings.

6 considerations for getting divorced past age 50

The phenomenon of "gray divorce" is rising. Pew Research Center reports that the over-50 divorce rate has doubled since the 1990s, and the over-65 divorce rate has tripled. However, there can be downsides and surprises to exiting marriage in your twilight years:

  • Your standard of living will take a hit - This is true of divorce at any age, at least temporarily. But the nest egg you and your spouse have amassed will not go as far as planned if you are divorced and maintaining separate households. Legal fees will further chip away at your finances.
  • You may have to work longer or work during retirement - Your retirement goals were probably based on twin incomes and a target age for you and your spouse to retire. Since there is not enough time to catch up financially, you may have to postpone retirement, work part-time after retiring, or scale back your projected lifestyle.
  • Your pension and 401(k) are not yours - Under New Jersey law, wealth acquired during marriage is subject to equitable distribution (divided approximately in half). This includes qualified retirement plans and pensions. It doesn't matter that the money was deducted from your paychecks. It's marital wealth, with the exception of any contributions before you were married.
  • You could be subject to taxes and penalties - Retirement accounts cannot be cashed out or simply signed over to a spouse. IRAs, 401(k) and pension funds must be properly rolled over or transferred to avoid early withdrawal penalties, and to mitigate or defer the taxes. You need a professional to prepare a qualified domestic relations order (QDRO) that assigns a percentage to each spouse and specifies when the funds are distributed, when taxes are paid, etc.
  • You could be paying alimony - Alimony is more common in long-term marriages, especially when one spouse has few employable skills or cannot work because of health issues. Unlike child support, there is no alimony calculator. The judge has some discretion in applying the 14 statutory criteria.
  • What to do with the house? - The marital residence can be a source of conflict. It's a valuable asset, but the mortgage and taxes can be a burden on one income. Is it feasible for either of you stay in the house, or should you sell it and downsize?

Don't ignore these important financial issues

Getting divorced after age 50 is a hybrid of divorce planning and retirement planning. As you enter your fixed income years, it's important to ensure you will emerge from divorce in sound and predictable financial shape.

When you are interviewing attorneys, ask about their experience with the special considerations in "gray divorce." If the lawyer cannot elaborate on those points, he or she may not be the right choice to represent you.

Source:  A Gray Divorce Can Devastate Your Retirement Plans. Here's How.  (Washington Post)

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