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Decisions made in a divorce can affect retirement plans

On Behalf of | Aug 27, 2013 | Divorce

Going through a divorce is a time filled with difficult emotions. However, most experts warn that for those in Massachusetts going through a divorce, especially those over the age of 50, it is important to think through the unexpected ramifications of each and every decision. Many women over the age of 50 rightfully worry they will not have enough money to retire while men worry they will have to delay their retirement. There are a few decisions that those going through a divorce that can help keep retirement plans on track.

Most importantly, it is important for a spouse to consider the long term value of an investment. For example, many people automatically assume that choosing the house in a divorce is the best course of action. However, some experts point out that a house is sometimes costly to maintain and may not be the best investment for someone looking to retire. In many cases, choosing a retirement fund over a house proves to be more financially prudent.

However, when dividing retirement funds, it is important for parties to realize that there are two different types in regards to taxes. One type of retirement fund requires that the owner pay taxes when they withdraw the money while, for others, taxes are paid when deposited into the funds. Therefore, a fund where taxes have already been paid may actually result in more money.

There is also question of what to do with a spouse’s retirement fund that is received as part of the divorce settlement. Many recent divorcees need to borrow from such funds in order to make ends meet. In this circumstance, it might financially imprudent to simply roll the fund into a new account as those with a specific court order may be qualified to withdraw from a retirement fund for a set period of time without being charged the normal 10 percent penalty. However, experts caution against withdrawing too much money at this time as this money will need to provide support for, potentially, several decades.

There is no doubt that divorce can be an emotionally complicated process in Massachusetts and across the country. There are many decisions to be made in addition coping with one of the most emotionally draining events in one’s life. Considering all the repercussions of each decision can go a long way toward securing future financial stability.

Source: Forbes, 4 Divorce Mistakes That Can Derail Retirement, Marilyn Timbers, Aug. 21, 2013

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