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It's Never Too Soon: Divorce And Retirement Strategies

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As you may have heard, retirement planning and actions should start early on and the sooner the better. The divorce experience can signal a major change in your financial situation and keeping an eye on the issue of retirement needs during this time is smart. There are two divorce-related financial moves that could end up impacting your retirement planning in a big way. Read on for some thoughts on some divorce and retirement moves that are better to make now rather than later.

Using a Qualified Domestic Relations Order (QDRO)

Divorce presents some couples with a unique opportunity not available under normal circumstances. The funds that have been added to certain retirement accounts, like a 401(k), are considered marital property. That means it's up for grabs and part of the property pot. Each divorce situation is unique, but if the spouse holding the retirement accounts agrees then the funds can be distributed to the other spouse during the divorce process.

Here's what to know:

  • The QDRO process has its own rules and is separate from the divorce, however, it must be complete before the divorce process is complete.
  • The funds that comes from one these accounts are usually meant to stay there and fines and penalties can result for those who remove funds before retirement age. With a QDRO, however, the funds can be disbursed penalty-free.

Taking advantage of a Social Security perk

As long as you and your spouse have reached the 10-year mark, one of you may be entitled to reap some of your spouse's retirement benefit. This benefit targets spouses that might not have been able to work outside the home as much as their spouse and helps to even up the financial situation for them.

Here's what to know:

  • At your full retirement age, your own benefit and your ex-spouse's benefits are evaluated and you will automatically be awarded the higher amount of either your full amount or one-half of your ex's benefits. For example, if your full benefit is $1,000 and one-half of your ex's benefit is $1,100 you will get the higher amount.
  • Your ex does not need to be drawing their benefit, but you both of should be of retirement age.
  • Your ex can be remarried, but if you remarry you lose the benefit and can only use your own retirement benefit.

Seek out divorce law services to learn more about these perks, particularly the QDRO, which must be initiated early in the process.