How Your Ex Can Give You Financial Problems After Divorce
Divorce is tough. And what comes years after that can be tougher, especially when talking about your financial assets.
From a survey by TD Wealth, four in 10 estate planners and lawyers said that “gray divorce”, or ending the marriage after 50, can wreak havoc on your financial plans. The divorce rate has increased for couples over age 50. In 2015, a study from the Pew Research Center concluded that 10 out of 1,000 married people in that age unit divorced.
In terms of financial matters, the longer the marriage, the more assets will be divided in the end. Here is how your ex-spouse can give you financial problems after a late divorce:
Less Cash and Longer Lifespan
According to 2017 data from the National Center for Health Statistics, Americans aged 65 have a life expectancy of 16.5 years.
The length of the marriage is well-considered when calculating alimony funds, and a decades’ long marriage could call for lengthier payment streams, said Ray Radigan, head of private trust at TD Wealth. This means that the wealthier spouse could give up larger accounts in order to provide spousal upkeep.
In terms of dividing family assets, the older couple will be put to a disadvantage for they will be less prepared for health care costs as soon as they stop working. According to Fidelity, a single woman aged 65 in 2019 will spend $150,000 in medical expenses via retirement, whereas a man of the same age will expect to spend around $135,000. Those expenses do not include long-term care.
Unexpected Tax Penalties
Splitting your accumulated assets can include tax penalties. Updating your savings account, investment account and insurance policies may incur tax landmines. For instance, when trying to split your 401(k) plan with your ex, you will need a certified domestic relations order—a judicial order detailing the payment. Should you opt to distribute the amount instantly from the 401(k) without the order, the amount transferred is topic to taxes.
On the other hand, there is no need for a domestic order for individual retirement accounts. However, your divorce decree needs to specify that you are splitting the IRA. You can do that via a trust-to-trustee switch. Still, you will be subject to sanctions and taxes if you write a check to your ex-spouse, cashing out his or her tranche of the IRA.
It is important to go over your and update the beneficiary designations of all your accounts. Steph Wagner, director of women and wealth and Northern Trust, states that beneficiary designation trumps the will for retirement accounts.
Execute a Prenup
Should you decide to have a second marriage, you might want to consider having a prenuptial agreement before walking down the aisle again.
By doing so, you will be ensured that you will not face a financial burden in case of another divorce. It also saves you from the stress of having to sort out shared properties as the prenup simplifies the process.
In addition, prenup comes in handy in case of the death of the wealthy spouse. The children and the spouse may have disputes over the assets. To secure your estate plan, seek the professional help of a financial planner and your attorney.
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