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How divorce can affect your retirement

The rise in divorce rates among older couples has increased significantly. For many reasons, couples who have been married for decades are now deciding to start a new chapter in their life and get divorced. For those older New Jersey residents who find themselves going through a divorce, there are several financial decisions to be made in order to maintain and safeguard their retirement savings.

According to the National Center for Family and Marriage, one in four divorces now involve couples who are over the age of 50. With so many older people divorcing, retirement savings can take a big hit. Older people tend to have more assets than younger couples, so a high asset divorce is more common. Real estate, retirement plans, and businesses are typical assets owned by older couples and it is critical for those to be divided properly for both individuals. Retirement accounts often are quite valuable for older couples. When dividing those assets during a divorce, careful analysis needs to be done. The couple will need a Qualified Domestic Relations Order (QDRO), which is a legal document set up to transfer retirement funds from one individual to another and protect the transferred amount from taxes and penalties. Often, mistakes can be made with this document, so careful attention to this issue is recommended.

Older couples should also be aware of total debt that is owed. Credit reports should be examined for both parties and credit cards and debts owned jointly should be paid off, if at all possible. Health insurance for older people is also an important issue in divorce. If one spouse is carrying the other on his or her health insurance plan, it may be hard for the spouse to find health insurance on his or her own following the divorce, at least until Medicare coverage becomes available. Because coverage through COBRA can be very costly, spouses may consider a legal separation so that one spouse can stay on the other's health insurance plan while still separating all other assets.

Older couples going through a divorce should be sure to take these issues into careful consideration. High asset divorces can be tricky with many financial implications that should be fairly sorted out.

Source: Forbes, "4 divorce mistakes that can derail retirement," Marilyn Timbers, Aug. 21, 2013

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