The effect that a divorce has on retirement
Posted by Thomas Pettinicchi of D'Amico & Pettinicchi, LLC on Mar 01, 2013 in High Asset Divorce
Many people have been reading about the increase in divorce rates among couples over the age of 50. These so-called grey divorces have actually doubled in the span of just 10 years and in 2010, about 25 percent of all divorces were among baby boomers. The reasons for this trend include longer life spans, shifts in societal views and greater expectations of a marriage. While many people are choosing to divorce and start a new chapter of life at an older age, there are some serious financial issues that should be considered.
Couples in Connecticut who have spent years accumulating wealth together likely have a 401(k) in place for retirement. The longer a couple is married, the more money they may have banked into this account. Not only can a divorce change a person's plan to retire with their spouse, but it can also make a huge impact on their retirement funds.
During a divorce, marital assets are divided equally between spouses. Because a 401(k) account is generally considered a marital asset, these retirement savings will be split in half. Instead of funding retirement for two people together, the money will now have to support the retirement of each separate individual. Some experts estimate that it will cost baby boomers who divorce anywhere from 30-50 percent more to retire because it is more expensive for two single people to retire than it is for one couple to retire together.
This can have a significant impact on a person's long-term planning. People may end up having to cut expenses, work longer to rebuild a retirement fund or take money out of other areas, such as inheritances for children. While it may be difficult to come to terms with a smaller retirement fund, it is a good idea for divorcing spouses to understand the process so they can prepare for their future.
Source: USA Today, "Boomer divorce: A costly retirement roadblock," Rodney Brooks, Feb. 26, 2013
- Our family law firm works with Connecticut couples who are divorcing and confronted with the difficult process of sorting out complex estates and assets. For more information on this subject, please visit our page on dividing marital assets.