Your retirement years are meant to be enjoyed with travel, relaxed mornings, fresh perspectives, and the satisfaction of decades of effort. Yet an increasing number of couples are experiencing separations or divorce after 50, known as “gray divorce.” This stage of life brings its own set of complexities, especially when it comes to safeguarding retirement savings.
In this article, we review the types of assets frequently at stake in divorce after 50 and outline important strategies to help you preserve your financial stability during this transition.
Shared Asset Division
Where you live has a significant impact on how previously shared assets are divided. According to community property laws, assets are divided 50/50 in some states. Massachusetts is not a community property state; instead, it follows equitable distribution rules, meaning a judge will divide marital property fairly, but not necessarily equally.
Before we discuss safeguarding techniques, let’s take a look at specific assets that are typically at stake during divorce proceedings.
Retirement Accounts
Retirement accounts like IRAs and 401(k)s are limited to one account holder by law, but the money that’s contributed to those accounts during a marriage theoretically belongs to both parties. Therefore, the spouse with the larger balance might have to transfer money to the other spouse’s account as part of the divorce settlement.
When divorce occurs, both spouses must file a qualified domestic relations order (QDRO) with a state-level domestic relations court outlining their desired distribution of the 401(k) funds.
However, IRA assets are not covered by QDROs. Instead, a straight rollover from one spouse’s IRA to another spouse’s IRA—the most tax-efficient method—can only happen if specified in the divorce agreement and filed with the plan custodian.
Pensions
Unlike IRAs or 401(k)s, pension division in a divorce after age 50 has unique challenges. While the rule of fair division during marriage applies, its practical implementation is substantially more challenging. Important factors include the retiree’s status (active, vested, or already receiving benefits), state rules, and the specific terms of the pension plan.
These factors can create a complex web of rules, requiring a thorough understanding of both the legal and financial aspects to enable a fair and accurate allocation. In contrast to the relatively simple process of moving money between retirement accounts using a QDRO, pension division typically requires sophisticated calculations, actuarial valuations, and careful adherence to plan-specific regulations, which can make the procedure time-consuming and complex.
To add to the complexity, if one spouse has invested the time needed to receive a pension, he or she may have a territorial attitude about it.
Social Security Benefits
Unlike retirement accounts and pensions, which often give rise to conflicting attitudes and disputes during a divorce, Social Security benefits are governed by federal law and are rarely subject to interpretation.
If you were married for at least 10 years before getting divorced, you may be eligible to receive Social Security benefits based on your ex-spouse’s earnings record. At your full retirement age, you can claim up to 50% of your ex-spouse’s full retirement benefit. This does not reduce the amount they receive.
To qualify, you must:
- Be at least 62 years old,
- Be currently unmarried (you may still qualify if a later marriage ended),
- And have been divorced for at least two years unless your ex-spouse has already started collecting benefits.
You won’t need your ex-spouse’s permission to file, and they won’t be notified. If you claim before reaching full retirement age, your benefit will be reduced.
If you’ve had more than one marriage that lasted 10 years or longer, you can choose the ex-spouse whose record gives you the higher benefit. And even if your ex has been divorced multiple times, that won’t affect your eligibility or their own benefit amount.
Strategies for Shielding Your Assets
Now let’s explore specific strategies for shielding your assets.
- Gather financial records: To gain an accurate assessment of your financial situation, gather all appropriate financial documents, including tax returns, bank statements, retirement account statements, and investment account statements.
- Seek professional guidance:
- Consult a divorce attorney who specializes in large-asset divorces.
- Work with a professional wealth manager who can guide your financial decisions.
- Negotiate strategically:
- Prioritize long-term financial safety over short-term gains.Examine the tax ramifications of different settlement options.
- Be aggressive when communicating your needs.
- Review and update your estate plan:
- Review and update your estate plan, including your will, beneficiary designations, and power of attorney.
- Confirm that your estate plan aligns with your post-divorce needs.
- Make a post-divorce financial plan:
- Develop a new financial plan that aligns with your post-divorce lifestyle.
- Review your investment strategy and adapt your portfolio as necessary.
Take the Next Step in Navigating Divorce After 50
Divorce later in life can be especially difficult, both emotionally and financially. After years of building a life together, the thought of separating assets, especially your hard-earned retirement savings, can feel overwhelming. However, with the right strategies and support, you can protect your financial future and confidently embark on your next chapter..
At Tapparo Capital Management, we understand the unique financial considerations that arise from divorce after the age of 50. We help our clients safeguard what they’ve worked hard to build by creating thoughtful, customized financial strategies aligned with their future goals.
If you’re navigating this transition and want guidance you can trust, we’re here to help. To schedule a “Get Acquainted Call” to see if we are a good fit for each other, call 978-887-1121 or email andrew@tapparocapital.com.
About Andy
Andrew Tapparo is a fee-only financial advisor at Tapparo Capital Management, a financial planning firm in Topsfield, MA, helping clients turn their savings into a retirement income that lasts. Inspired by the quote “Choose a job you love, and you will never work a day in your life,” Andy founded Tapparo Capital Management in 1997 with a passion for helping clients enjoy a truly worry-free and fulfilling retirement and experience financial freedom. As a Retirement Income Certified Professional (RICP®), he designs retirement strategies along with sound money management to help clients retire with confidence.
Andy holds a Bachelor of Science in Industrial Engineering from Rochester Institute of Technology in Rochester, New York, and a Master of Science in Finance from Bentley University in Waltham, Massachusetts. Specializing in retirement income planning, Andy completed a comprehensive financial industry education program at The American College of Financial Services and was awarded the Retirement Income Certified Professional® designation. He is frequently quoted in the media as a financial expert.
Andy and his wife, Susan, live in Topsfield, Massachusetts, and have two beautiful daughters. Outside of work, he is an automobile enthusiast, enjoys taking road trips, and loves the Outer Banks of North Carolina. In his spare time, he volunteers with the local high school varsity girl’s basketball team as the team statistician and runs the team’s website. He is passionate about supporting charities that serve our veterans and their families. To learn more about Andy, connect with him on LinkedIn.
