Couples divorcing close to retirement age face unique financial considerations, particularly when it comes to dividing retirement accounts and planning for post-divorce income. Careful planning during this life stage can help both spouses move forward with greater financial security. Considering how accounts are divided, speaking with financial advisors and tax accountants, and working collaboratively is often the best way to promote future success.
Dividing Retirement Accounts Close to Retirement Age
Dividing retirement accounts, such as pensions or 401(k) plans, close to retirement age often requires careful attention to timing, since these decisions can directly affect when and how each spouse begins receiving retirement income. Qualified Domestic Relations Orders (QDROs) and similar mechanisms are often used to divide these accounts without triggering early withdrawal penalties. Failing to utilize these tools and instead withdrawing funds or taking out loans can have significant penalties or complications.
Coordinating Social Security Considerations
Divorcing spouses who were married for a significant period may have options related to Social Security benefits based on a former spouse's work record, which can be an important consideration in post-divorce retirement planning. Understanding these options generally requires reviewing the specific rules that apply based on the length of the marriage and other factors. Running the numbers on social security – especially for very long-term marriages – may be a smart way to ensure an equitable post-divorce financial situation.
Planning for Post-Divorce Housing and Living Expenses
Near-retirement couples often need to reassess housing plans and living expenses as part of a divorce, particularly if a family home needs to be sold or refinanced as part of the property division. If the family home still has a mortgage, thinking about refinancing costs and new interest rates is an important step. Similarly, even if mortgage free, determining what assets may be used in an equity buyout can have important long-term implications for each spouse's financial stability in retirement.
Working with Financial Professionals During the Process
Given the significant financial stakes involved, near-retirement couples often benefit from working with financial planners, accountants, or retirement specialists alongside their family law attorney to fully understand the long-term implications of their settlement. This collaborative approach can help ensure both spouses enter retirement with a clear and realistic financial picture.
Divorcing close to retirement age involves unique financial considerations that deserve careful, coordinated planning. At Magnuson Lowell, P.S., we help near-retirement couples throughout Washington navigate the financial aspects of divorce. We offer free telephone case evaluations to discuss your situation.
