Minnesotans may plan for retirement but they do not always plan for divorce. Unfortunately, a divorce can wreak havoc on retirement account if couples do not follow the certain steps at divorce or at least prepare for the possibility of divorce.
One Minnesota resident felt this blow first hand. The man and his wife were married for 30 years and had big plans of a shared retirement. Now that the couple is divorced and without two retirement accounts, the man finds himself living on a much tighter budget and with limited finances.
As more and more couples get divorced at a later age, a complex property division issue is now with retirement funds. When a marriage ends, assets are generally split up or cut in half and distributed to the parties involved. The key is making sure the property division is fair but this is not always an easy decision.
One spouse may have an especially big pension or defined contribution plan, while the other spouse does not. If the have-not spouse does not argue for his or her share of these benefits, then that person may be in trouble when it comes time to retire. As many of these divorces happen later in life, it is harder for people to catch up and build up their retirement portfolios to a pre-marriage state.
Furthermore, not all benefits and assets may come to light during divorce settlement talks. For this reason, many couples find it wise to include a provision in the settlement agreement that covers any overlooked assets that may be realized later on. Such a provision prevents spouses from missing out of later-discovered assets.
Social Security is another point that can be easily overlooked. If the parties have a large disparity in income, it may be a big blow for the lower-earning spouse not to get half of their ex's Social Security benefit. This can be addressed during settlement negotiations as well.
Divorce can be an emotional charged time. But couples can do themselves a favor and avoid rash, short terms decisions and think big-picture along the line of future living expenses and retirement needs.
Source: Columbus CEO, "Retirement Plans Thrown Into Disarray By a Divorce," Constance Gustke, June 27, 2014