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Divorce and Retirement

Clarkston Legal May 31, 2024

divorce and retirementImagine you're in your sixties and you've been married for 35-years. Both you and your spouse have been employed throughout your marriage, even when you were raising your three children. She blindsides you with a divorce filing; now what?

Here's another one: imagine that the two of you planned your whole married lives for retirement; a retirement together. Now that it has arrived, you wake up one day only to realize that you just don't want to spend the rest of your retierment with this person.

A third scenario: you retire, but your spouse continues working full-time deep into her sixties. Lately, she seems to resent you and has been bringing up divorce.

These and other scenarios are popping-up frequently in our law practice over the past few years. The divorce rate for married couples over 60 -couples eligible for retirement- is rising higher than any other age group. This post explores some of the basics of retirement and its intersection with the divorce process.

For many retirees, the adjustment is twofold: on the one hand, they move away from a group of people -their work colleagues and peers- who were like a second family; on the other hand, they now have a surplus of time to spend, usually with their spouse. This can precipitate some tensions.

Just as people change as they grow into adulthood, they also change as they approach retirement. Short and long-term marriages hang in the balance of how married couples handle these changes.

The "Peak 65" Era.

This year, a record number of so-called "baby boomers" will attain the age of 65. Over 11,000 people are attaining age 65 in the United States every single day and this will continue for a while. Economists and sociologists are predicting significant long-term effects to our society, our culture and the economy.

One of the factors married couples consider as they approach retirement is whether and when one or both of them will apply for social security. Ever since baby boomers were teenagers, they have been hearing that social security may not be there when they are ready to retire.

If you were born in 1957 or earlier, you are eligible for your full Social Security benefit. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. Peak 65 has no doubt placed much fiscal pressure on the social security system and raises doubts and stress levels among married couples in this age group.

One method of addressing this uncertainty is for one or both spouses to work longer; perhaps longer than anticipated. A trend noted by economist Teresa Ghilarducci in her recently published book Work, Retire, Repeat is to switch jobs or industries later in life to find something that doesn't feel as much like work, but brings in income to supplement a couple's retirement savings. This too, however, can lead to stressors sufficient for one or both spouses to consider a divorce.

One Spouse Retires; the Other Does Not.

This mode of retirement can lead to resentment even in the strongest of marriages. While there may be several good reasons for one spouse to remain in the work force, the working spouse often feels like she is carrying the couple financially; that spouse may become jealous about all of the other spouse's newly discovered free time.

On the other hand, the retired spouse may become bored or question his self-worth; he may also harbor feelings of resentment toward the working spouse. These issues need to be talked out and addressed as a married couple as they arise. Counseling may also be a good idea at this point in the marriage so that feelings do not fester and build up.

In the event of a divorce, the working spouse may feel entitled to the portion of retirement savings earned during the years while the other spouse was retired. A typical property division, however, does not allocate retirement assets in this manner; the retirement assets earned during the marriage are divided equally regardless of whether one spouse was retired while the other spouse was working to attain such savings.

Simultaneous Retirement.

Assuming both spouses worked during the marriage, couples sometimes decide to retire together. This is a significant adjustment. If both spouses are not prepared for this life change, adjustments to the married couples' mind set could be in order.

In the simultaneous retirement model, both spouses not only have a significant amount of time on their hands, their dual income also disappears. This too is a significant adjustment that takes getting used to by the married couple. People, including spouses, react differently to having time on their hands, just as people, and spouses, react differently when their disposable income disappears.

Every couple handles such a change in status differently. Not every couple makes it into retirement gracefully. Just as when a couple starts having babies, if the marriage is not on solid footing before kids, the multilateral changes that children introduce sometimes rents the marriage asunder. Our law firm has observed similar patterns in the retirement phase of a marriage. Obviously, the best predictor of a strong marriage in retirement is the strength and quality of the marriage prior to retirement.

Basic Division of Retirement Assets.

Retiring couples facing divorce have the task of taking an inventory and negotiating a division of their retirement assets. In most cases, an even 50/50 split is the result of the divorce proceeding.

Other cases are complicated by premarital components to the 401(k) or IRA. Sometimes a loan balance exists on the plan and needs to be apportioned to one of the divorcing spouses.

Retirement assets most often take the form of a defined benefit plan (i.e. a pension) or a defined contribution plan (i.e. a 401(k) plan). Pensions, of course, are becoming more rare. We still see a fair amount of cases with public servants that have pensions, i.e. teachers, police officers and firefighters. Most private businesses stopped funding pensions long ago.

In many cases, a divorcing spouse's financial goals will affect how to approach the division of retirement assets. For example, we are often faced with a spouse that desires to stay living in the marital home. This desire sometimes deepens as the spouse nears retirement. They become willing to trade retirement dollars for their spouse's portion of the home equity.

Every case is different, of course. While there are myriad retirement strategies and platforms, certain principles do apply in divorce proceedings. First, we try to equalize the retirement assets with the minimal amount of roll-overs. Second, a qualified domestic relations order is prepared by a specialist, if necessary. These are usually prepared by a specialist.

Second, pre-marital components of a spouse's retirement are carved-out of the marital estate. Therefore, if one spouse diligently saved for retirement prior to the marriage, then she gets to retain those savings as her separate property. There are exceptions to these general rules.

We Can Help.

If you have questions about divorce as you approach retirement, contact us for a free consultation. Our team of experienced divorce lawyers can develop your legal options.