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Dec 10, 2020

Divorce after 50 – Retirement and Pensions

Divorce and General Articles, Finances

For couples over the age of 50, retirement and pension accounts can play a significant role in a divorce settlement.

Educate Yourself about Retirement Accounts

It’s important to understand how those accounts function. Couples over 50 have likely been working for several years, so the retirement accounts may make up a large percentage of the assets. Each party must fully understand their portion of their assets. This is especially true when one spouse has been the primary caretaker and administrator of the finances in the family. The other spouse may not understand or even know anything about their retirement savings.

Defined Contribution vs Defined Benefit

There are two primary types of retirement accounts: defined contribution and defined benefit. Defined contribution accounts include 401k accounts, 403b accounts and Individual Retirement Accounts (IRAs) and IRA subtypes. Defined benefit accounts are pensions. They are not as prevalent because they are very costly for the employer.

Defined benefit accounts cannot be divided in a divorce. If the couples need to share in its value, a legal document called a Qualified Domestic Relations Order (QDRO) offers a non-penalty way of sharing the financial asset. The other option it to put a present-day value on it and offset the value with other assets.

Defined contribution accounts also require QDROs to be divided. The funds in the account are actually owned by the account holder. So, the account can be divided into two separate accounts. Individual retirement accounts (IRA’s) usually do not require a QDRO, but are divided according to the terms of an executed Marital Settlement Agreement.

Retirement Accounts: Asset or Income?

A retirement account must be categorized either as an asset or as income, and not both. If someone has reached the age at which they can begin to withdraw funds from the account or receive payments from it, the account is said to be in “pay status” and those retirement assets can no longer be classified as assets. Obviously in divorce clients over 50, this is often the case.

Survivor Benefit for Defined Benefit Plans

Most defined benefit plans fall under the ERISA federal law. When a married plan participant retires, they must elect a survivor benefit, which in most instances is irrevocable. A subsequent divorce requires an analysis of the dollar amount of the participant benefit and the survivor benefit. Then an adjustment to the overall settlement reconciles the reality of their retirement.

In a mediated divorce with the ALPHA CENTER, we would work together with the parties and this would be far more straightforward than in any litigated scenario. The clients must know the details of their retirement accounts and it is more imperative if they are divorcing after 50 and facing retirement soon.

For more information on divorce after 50, view the following links:
Divorce After 50: Special Considerations

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