People tend to worry about their most valuable assets when they decide to divorce. Especially when the divorce occurs close to the age of retirement, both spouses may worry about their future financial stability. Working out appropriate property division terms can be of the utmost importance during a gray divorce involving spouses in their 50s or beyond.
Both spouses may need to educate themselves about what happens with crucial retirement resources at the end of a marriage. Those who know what to expect are less likely to waste time and energy fighting for unachievable terms or panicking over unrealistic fears.
What retirement resources do most people need to address when they divorce?
Medicare coverage
Working professionals are typically eligible for Medicare after they reach a certain age. Dependent spouses may also qualify for Medicare based on the employment history of their wage-earning spouse. Lower-earning and dependent spouses may worry that they could lose their Medicare eligibility because of the divorce. Typically, if the marriage lasted at least 10 years, dependent spouses can qualify for Medicare through the work history of a higher-earning spouse even after a divorce.
Retirement savings
Retirement savings may involve a standalone financial account, like a 401(k). Other times, workers accrue retirement savings through an employer’s pension program. In some scenarios, it may be possible to directly divide retirement savings as part of the divorce. Couples can split the account. They can also calculate the marital portion of the account and factor that into other property division choices. With the right paperwork filed after the final property division order approved by the courts, it may be possible to divide retirement savings without risking taxes and penalties.
Social Security retirement benefits
Most people cannot live comfortably on the retirement benefits provided by Social Security. However, retirement benefits paid by Social Security can be an important supplement to pension benefits or private retirement savings. Lower-earning and dependent spouses may qualify for Social Security retirement benefits based on what they and a spouse earned. If the marriage lasted for at least 10 years, the spouse who left their job or earned less can qualify for Social Security retirement benefits based on the income and employment history of the other spouse. Claims of dependent spouses do not diminish the retirement benefits paid to wage-earning spouses.
Understanding what happens with specific retirement resources can help people prepare for divorce and life afterward. Preserving retirement resources is often a top priority for those preparing for a gray divorce in particular.
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