DIVORCING LATE IN LIFE
Divorcing late in life presents its own set of challenges, such as increased need for liquidity. If you have a home-maker spouse with little or no income who wants to put a down payment on a home, remodel existing home, supplement her alimony, etc. This is especially challenging if the bulk of the marital estate is tied up in retirement assets. Here is a list of tools and considerations available to achieve the most optimal equitable distribution scenario.
- Don’t neglect social security! Although social security is not a divisible asset but rather an economic benefit, your client should clearly understand what his/her estimated benefit would be. This would be accounting for things like collecting on his/her soon-to-be ex’s record or an adjustment due to a receipt of certain pension benefits.
- Consider the tax impact of retirement benefits, including penalties! Understand hidden gems within the IRS code that allow both spouses to tap their retirement funds before age 59-1/2 without the 10% penalty. There are different provisions within the Code available for qualified plans, such as 401(k)s and for non-qualified plans, such as IRAs.
- Look at the full big picture. After you had the titled spouse’s defined pension valued, it is important to ascertain whether there are other retirement benefits, and also trace the marital portion of any additional defined contribution plans, especially if they were brought into the marriage.
- Consider the power of tax-impacting by trading a lower amount of a non-taxable asset for a higher amount of a taxable retirement asset. For example, instead of offering to split your client’s 401(k) $500,000 account in half, offer the non-titled spouse her half in less cash, $200,000, to account for taxes and time. She will not have to pay taxes on her share or wait for the transfer into her retirement account.
Denisa Tova, CDFA, CFP, MBA is a highly experienced Mediator who is also a Certified Divorce Financial Analyst, Certified Financial Planner, Forensic Financial Expert and Retirement Asset Valuation and QDRO Specialist. Mediator Denisa Tova, CDFA, CFP has Mediated Over 2000 Divorces.