By Colleen Weber, CFP®, CPA

Retirement is meant to be a time of relaxation, adventure, and enjoying the rewards of decades of hard work. However, for a growing number of couples, a “gray divorce”—separating after 50—brings unexpected financial challenges.

One of the biggest concerns? Safeguarding your retirement savings. In this article, we explore the most commonly contested assets in late-life divorces and outline steps to support your financial future.

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. Other states follow the equitable distribution theory, which divides assets fairly but not always equally.

Before we review 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 divorce after age 50 has unique challenges. While the rule of fair division during marriage applies, the realistic execution 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 an intricate web of rules, requiring a thorough comprehension of 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 have conflicting attitudes and squabbling during a divorce, the management of Social Security benefits is governed by law and is rarely up for interpretation.

If the couple was married for at least 10 years prior to their divorce, the ex-spouse may apply for monthly payments worth up to 50% of the higher earner’s entire retirement-age pension. 

If the lower earner remarries, he or she renounces entitlement to those gains. However, regardless of how many times the higher-earning spouse has been married and divorced, this ex-spousal rule has no bearing on their payout.

Strategies for Shielding Your Assets

Now let’s review 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 investing 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. Don’t simply rely on the attorney.

Negotiate strategically.

• Prioritize long-term financial safety over short-term gains.

• Examine the tax ramifications of different settlement options. As a CPA and a financial advisor, I can help you with this.

• 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.

Move Forward With Confidence

Divorce is never easy, and ending a long marriage brings unique financial hurdles—especially when it comes to safeguarding your retirement savings.

At Colleen Weber CPA, CFP^®, we help clients navigate the financial complexities of divorce. Our team provides personalized strategies to shield your assets and create a financial plan designed specifically for your future. Reach out today and book a free introductory meeting online or call (952) 470-0750.

About Colleen

Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER® professional, and CPA based in Chanhassen, Minnesota. With more than 20 years of financial planning experience, Colleen provides comprehensive financial planning and wealth management. She specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.