Divorce is never easy. Even if the marriage has already dissolved for all practical purposes, the legal process and division of assets is a complex and often messy necessity. To establish a strong foundation for your future, you need to take your time in divorce and get the settlement right. Overlooked details today become dollars tomorrow.
One aspect that many divorcing individuals worry about is retirement. When you're splitting a single retirement account in two directions, that safety net you planned to live off feels a little less secure. Georgia is a great state to retire in-this study says that one million dollars in savings will last for almost 25 years, sixth best in the country. Georgia's rank may be comforting, but the study lives conservatively on that hypothetical one million dollars, without travel or entertainment in the budget.
Hidden value, hidden costs
If you thought retirement accounts were complex when you set them up, imagine trying to modify them after the fact. There are specialized ways to divide accounts, such as using a qualified domestic relations order (QDRO) which will define distribution terms at retirement age. Other options involve identifying property of equitable value. For example, maybe a husband keeps the family business and the wife keeps the retirement account.
Retirement accounts vary. Types include a pension, IRA, 401(k), Social Security, military and disability payments and more. Each type of account has unique conditions about taxation, early withdrawal, distribution of income and more. Some accrue value slowly and conservatively while others are more aggressive. In most households, there are multiple accounts to diversify and meet different needs.
When splitting assets in divorce, you'll want to measure the value of an account upon distribution, not the present. It's essential to analyze projected market rates because an aggressive small account may grow quite valuable with time. If you are looking to trade assets, it's important to note that physical property like a home or business will require expenses, while the retirement account is likely to increase even without new contributions.
Planning around the variables
Because of the many variables and regulations, it's essential to get expert help when dividing retirement accounts. A financial planner or forensic accountant can predict market value and advise on different schedules depending on when you'd like to retire and what taxes or penalties may apply. By looking at possible growth-and loss-on accounts, you'll get a full financial picture when weighing value versus your own needs as you look ahead.
No divorce is the same, nor is any retirement plan. Once you've decided to move on, it's important to keep your future goals in mind so you don't create unnecessary roadblocks during your divorce. Any divorce will have a significant impact on your life, but with a careful approach, you can keep your feet on the ground with a solid foundation beneath you as you re-enter the single life.