When couples undergo divorce, the focus is often on short term financial priorities rather than long term ones. Needless to say, this is a major mistake, and hopefully for obvious reasons.
While many people treat money in regard to their immediate needs, the simple fact of the matter is you need to think long term about your situation as well. This means that not only do you need to be thinking about your immediate everyday expenses, but you also need to be thinking about long term savings, where you see yourself ending up in the future, your investments and benefits, and of course, your overall retirement plan.
Retirement planning in particular can cause significant problems following a divorce. No longer are you able to split living expenses or pool assets together in your retirement savings.
With that in mind, let’s cover some basic ways that you can reset your retirement plan following a divorce:
Ensure That Your Retirement Plans Are Divided Properly According To A QDRO
Fundamentally, you will need to ensure that your retirement plans are divided according to the agreement of your divorce. In fact, under current Federal law the Internal Revenue Service requires a Qualified Domestic Relations Order, or QDRO, in order to divide money in a retirement plan between divorcing couples. This is a document that simply outlines how your assets will be divided.
Avoid Paying An IRS Penalty
If you are indeed eligible to have a share of the assets deposited into your retirement plan, there will only be a one time opportunity for any divorced spouse under the age of fifty nine and a half to withdraw any money from the retirement plan of an ex-spouse without paying a 10% penalty.
Go Over Your Social Security Benefits
Contrary to what many financial experts may tell you, you should not at all treat Social Security as being a minor issue to your future retirement plan while you are undergoing a divorce. Social Security benefits will stop increasing each year once you turn 70, but that doesn’t at all mean that you have to wait until then to find out if you have to wait to take any benefits.
Also remember that any retirees who have been married for over a decade and who have not remarried since then will be entitled to Social Security benefits on the record of their ex-spouse. Discuss this with your financial advisers.
Be Fine With Financial Limitations
Last but not at all least, financial limitations are very likely to exist following a divorce and you may have to cut back on expenses especially if you have relied on your ex-spouse for most of your income.
Fortunately, retirement planning can help to prevent major financial problems down the road, which is why discussing your retirement plan with your financial advisers and divorce lawyers is absolutely critical.