Everyone dreams about the day they will hop on the back of a magical unicorn and ride off into the golden sunset with the love of their life. Well, not everyone dreams about a magical unicorn, but almost everyone desires someone to share their life with.
The idea of marriage is meant to give us hope that our love will last and we will spend the rest of our lives with one special person. Unfortunately, that’s not the case for many American couples. According to the American Psychological Association, 40% to 50% of American marriages will end in divorce.
In addition to the emotional toll, divorce can have a substantial effect on your retirement plans. Whether you’re getting a divorce or considering one, you need to understand the impact divorce has on your finances and retirement.
When you’re married, you and your spouse plan for your financial future together. You share everything with your spouse including your home, your expenses, insurance, and retirement savings. You most likely envisioned your golden years spent in a rocker on your front porch holding your partner’s hand and watching the world go by as you enjoy the company of your loved one.
But once you decide to divorce, you need to change your financial mindset. You will now have to think about your financial well-being from an individual perspective. This can be a tough transition, so be patient with yourself while you find your way and establish new expectations.
Separation of assets
Most retirement assets are generally considered “community property”. This means that when a couple goes through a divorce, retirement assets are equally divided to each party. The calculation for division of all assets is dependent on the length of the marriage, as well as divorce regulations, which may vary by state.
Even the retirement accounts that are only held by one party will be subject to separation in the event of a divorce. Another requirement to consider is the process of fairly dividing your real estate, assets, investments, and any other items that carry value. This may require you to sell your home and divide the assets, or have one party pay a portion of the equity to obtain sole ownership.
Dividing assets can become complicated and time consuming, but your assets aren’t the only financial aspect you will need to deal with. Here are a few other financial puzzle pieces that will need attention.
When it’s time to retire, you have the opportunity to receive Social Security benefits on your ex-spouse’s behalf. If you and your partner were in a marriage that lasted over 10 years and you never remarried, you can apply to receive one-half of your ex-spouse’s full benefit amount.
Even if your ex-spouse hasn’t applied to receive their own benefits, you can apply to receive benefits on their behalf two years after your divorce. If you qualify, these benefits could supplement a portion of your income.
Keep in mind, if one spouse stayed home to tend to their children, this could lower the amount of Social Security you will receive in the future.
Your health is one of your most important assets. It’s imperative you guard it from harm. If you were receiving coverage under your spouse’s health insurance, you will now need to find your own coverage. If you work full-time, most likely your employer will offer benefits.
If your employer doesn’t provide health insurance benefits or you’re unemployed, you may be eligible for COBRA. Under COBRA, an insurer will extend the policy of an ex-spouse for up to 36 months while you seek other options. Keep in mind, you will have to pay the full premium amount since you are no longer sponsored by the employer. This is also only a temporary solution, and you will need to find coverage once this policy expires.
Another option is to visit the health care marketplace. There you can find health care coverage that fits your price range and location.
Balancing new expenses and income
In the past, your partner may have financially contributed to your household expenses. Now that you will be on your own, you will need to balance your new income with your new expenses. This aspect of divorce tends to be a shock for many newly single individuals. They may not have realized the financial implications of their new marital status.
This also means that you must take 100% responsibility to save for your retirement. You will have to factor this additional expense into your budget and create a plan for developing a secure financial future.
This task can seem overwhelming, confusing, and almost impossible if this is your first time tackling financial matters. It may be wise to partner with a financial planner to help you unravel the complexities of retirement planning. Hiring an expert to assist you in establishing a new retirement plan may eliminate some of the stress that comes along with single handedly planning for your future.
Partnering with a financial planner with retirement expertise can help you develop a roadmap that can increase your chances for success in your golden years. By engaging with such, they will encourage and direct the tough conversations that need to happen to help you prepare for when the unthinkable happens.
Many retirement questions and financial concerns will come up when developing a new retirement plan. You will want someone by your side who can explain all your options and then provide strategic suggestions. They can also provide recommendations that can help ease your concerns.
Extend your career
Since your financial responsibilities may increase, it may be sensible to consider extending your career a few years. You may have planned to retire at 62 or earlier, but now you may need extra cash to support your financial future.
Extending your career can also boost your Social Security benefits. The benefits you receive are an average of your 35 highest income earning years. So, the more money you make, the better your future benefits will be.
Manage your emotions
Experiencing divorce can be a long and challenging process which can affect your emotional well-being. You may feel as though your entire life has been turned upside down, and learning to accept a new normal can be difficult. When going through a divorce, you want to have someone in your corner to help you be as logical as possible, as sometimes emotions can impact the way you make decisions.
For example, you may have an emotional connection to your home. However, even if you receive alimony and additional support, keeping the home in your name could leave you house rich and cash poor. Many divorcees must learn to cope with the overwhelming result of these decisions. It’s best to seek professional guidance and support to help you make sound financial decisions.
A financial planner is a great resource for helping you determine the best options to help you be successful in your new life. It is recommended that you consult with a financial planner before agreeing to any terms of the divorce. Your financial planner will help you see the big picture and determine the right moves that can guide you toward a rewarding financial future.
The bottom line
So, does divorce impact your retirement? Absolutely! Getting a divorce can have severe financial consequences if you’re not careful. Consulting with a financial planner can be one of the best decisions you will ever make, especially when faced with an impending divorce.
The best place to start is to partner with a financial planner that can help you strategize all the pieces of your retirement puzzle and give you the knowledge and confidence to help set you on a path to achieve and maintain the future lifestyle you envision. If you’re ready to take control of your independent financial future, please contact our team today. We’ve helped hundreds of divorcees regain confidence and control, and we’d like to do the same for you.