Retirement And Divorce: Planning Ahead

It's never too early to begin to make plans for your retirement years, and divorce presents at least two opportunities for that planning. One of these requires that you be married for a certain amount of time and the other means taking action during your divorce process. Read on to learn more about these two divorce-oriented retirement planning moves to consider.

Social Security

You might already know how the Social Security Administration (SSA) provides workers with funds once they reach a certain age, but many people don't realize that there is a divorce connection. If you and your spouse have been wed for a minimum of 10 years, then you may qualify for a special type of Social Security benefit.

Whether you have set aside your career for raising children or if your earnings were just less than your spouse's, the SSA has you covered. Once you reach full retirement age, the SSA will calculate the earnings on your own record and then supplement those earnings using up to one-half of your ex's earnings. Even if you had no earnings, you are still entitled to collect one-half of what your ex-spouse is receiving. If your own earnings are higher than that of your ex's, then you will collect from your own benefit.

Here's what to know:

  • You can only collect this divorce benefit if you do not remarry.
  • You can still collect this benefit if your ex-spouse remarries.
  • Your ex's benefit will not be affected by you earning this benefit, and they are not likely to even know that you are collecting it.

The Qualified Domestic Relations Order (QDRO)

If your retirement plan could use a boost, then a QDRO could help with that. This legal and financial act allows you to collect some (or all) of the retirement funds in your spouse's 401(k) account without having to pay any of the usual penalties. This must be accomplished during the divorce in coordination with the retirement fund's administrator.

Here's what to know:

  • You and spouse must agree on the amount of this disbursement, but a retirement plan is considered marital property just like the home and other property.
  • You must pay taxes on the disbursement since it is considered income, but not if you "roll it over" into a qualifying plan before tax day.
  • A QDRO is not a part of divorce decree but is a separate act and must be signed by a judge before the decree is final. It should be noted, however, that a QDRO is not possible without a divorce.

Don't let these retirement benefits pass you by, speak to your divorce settlement lawyer and find out about a QDRO.