The impact of a divorce on your present and future may require a massive change in plans. One area where you may feel the brunt of a split is retirement.
Absent a prenuptial agreement that addresses how money divides, you may want to prepare yourself for what such a split may look like. Discover how dissolving your marriage may affect your post-work life.
The timing of divorce and retirement
At the beginning of your career, you may struggle to put much away for decades in the future. However, the longer you work and the more success you experience, the more money you make to invest. A divorce towards the beginning of your professional life may not hit your retirement plans too hard. However, if you have young children, you may experience more difficulty saving for retirement. Child support and alimony may take away from your nest egg and cause you to play catch up once these payments end.
The splitting of retirement accounts
There are options for dividing retirement accounts during a divorce. A QDRO or Qualified Domestic Relations Order allows you to draw money from your ex’s retirement account. The order sets out the terms of the payments, such as the frequency and amount. These payments may start before you reach retirement age in some situations. The tax implications involved depend on how and when you draw on the money. Another option some couples choose is an equalization payment. This means the spouse who would owe money from the retirement account to the other gives up another asset instead of a QDRO.
Ensuring that the division of assets during divorce is fair remains a priority for family court. Remember that altering your retirement plans in the wake of a split does not mean the break from work is impossible.
