Many older adults look forward to when they can leave the workforce and enjoy retirement. Traveling, spending time with family, and having time to pursue their favorite hobbies are typically at the top of their golden years to-do list.
Finding yourself in the middle of divorce proceedings can cause a major derailment of those plans. Understanding the impact of a gray divorce on your retirement can help you better prepare yourself and plan for a different future.
What is a gray divorce?
The term “gray divorce” refers to a specific phenomenon of couples, typically over the age of 50, getting divorced after decades of marriage. Recent years have seen an increase in this type of divorce as people are living longer, healthier lives and don’t want to spend their remaining years in an unsatisfactory marriage.
Since this type of divorce may occur just as the couple approaches retirement, it can have a significant financial impact. Wisconsin is one of ten states that are community property states, which means that with some exceptions, all property accumulated during the marriage is to be divided equally among the divorcing couple. This includes:
- All income, including salary, investments and retirement accounts
- Real estate and personal property
- Debts
So, how are retirement accounts, such as 401(k)’s, divided if each spouse has their own? There are typically two ways to divide these accounts:
1. Each spouse keeps their individual retirement accounts while compensating the other spouse with other marital assets of equivalent value.
2. Each retirement account is divided equally between the two parties. This transfer can be done without penalties.
Each method has its pros and cons. It’s crucial to understand how each one can impact your retirement plans. You will want to discuss your situation with someone who can help protect your interests and secure your financial future.