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How a divorce could affect your retirement

For many years, divorces seemed to be much more common in younger couples. However, in recent years there has been a marked increase in the number of couples divorcing at or after retirement age, even after decades together. These so-called "gray divorces" can have major consequences for both you and your spouse, including changing what happens in your retirement.

While you probably no longer have to worry about the impact of your divorce on your children, there are many other concerns unique to later-in-life divorces. For some people, retirement-age divorces mean waiting many years longer than planned to fully retire. For others, living independently may no longer be an option after the financial fallout of the divorce.

Divorce can diminish your retirement funds

When most couples plan for retirement, they budget and save based on maintaining one home with potentially two pensions or retirement incomes, such as Social Security. Divorce obviously changes all of that. Not only will the amount you have saved now need to cover the expenses of two households, you will also have less money overall and only your own retirement income to help you remain financially stable.

For many couples, it becomes necessary to dip into retirement savings to pay for the expenses of a divorce. Even if you avoid doing that, you will still likely need to split your retirement benefits, even your personal pension, with your spouse.

Retirement accounts are typically split in a divorce

New York is an equitable distribution state when couples divorce. That means that any assets or debts acquired during your marriage will get split by the courts, regardless of whose name is on them.

There are a few exceptions to this rule. Property owned prior to marriage which was not commingled with marital property will remain the separate property of the original owner. Gifts and inheritances are also usually considered separate property.

For almost everything else, even your employer-sponsored pension, marital property rules apply. Unless you have a prenuptial agreement on record protecting your pension or retirement fund, it will probably get divided between you and your spouse as part of the asset division process. In some cases, the allocation of part of a pension or a retirement account could also be part of a spousal support agreement.

The good news here is that when a retirement account, such as a Roth IRA or a 401K gets divided as a result of a divorce, you can avoid early withdrawal penalties, taxes and fees. So long as the division of the account gets included in the divorce degree, that court order will allow you to divide the account with your ex without incurring those financial penalties.

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