Understanding How Divorce Affects Finances And Your Retirement

If you are planning on filing for divorce and have complicated finances, then the process may not be as simple as you want it to be. In this situation, you should hire a divorce attorney who is willing to help you sort out some of the more confusing aspects of your money. You likely have quite a few financial questions, so keep reading to understand some answers to a few of them. 

How Does Divorce Affect Social Security?

If you and your spouse have been working for some time, then you likely both have been paying Social Security taxes. Social Security is a program meant to provide people with a small portion of their income so they are able to retire without having to work. Since individuals pay as they earn, if you make more money, then you receive more benefits when you reach retirement age.

There is sometimes a disparity between the income that a wife and husband make. This can be problematic, especially since individual incomes are considered when benefits are calculated. For example, if you stayed home with the children and your husband worked, then you may not have paid nearly as much into the Social Security system. This can mean the difference between receiving just over $11,000 a year or a bit over $30,000. 

Thankfully, you may be eligible to receive a higher Social Security benefit based on your ex-spouse's income records. You can do this if you are over 62, if you have not remarried, and if you were married to your spouse for 10 years or more

If you go through more than one divorce, then the situation may be more complicated. This is also true if your ex-spouse does not immediately apply for benefits or if you are divorced for less than two years. In these cases, an attorney can help to determine what kind of benefits you will receive and whether or not alimony can and should be added to your divorce settlement to help make up the gap in earnings. 

Since you may not be able to claim benefits for a few years after your divorce, it is common to receive alimony during this timeframe.

Can You Receive Money From A Retirement Account?

Typically, any funds that are added to a 401K or another type of retirement account during the marriage are considered joint property. However, this does not include money that was added to the account before you and your spouse were married. When the accounts were started or acquired can complicate matters, and so can the actual division of the accounts themselves.

The division will require something called a Qualified Domestic Relations Order (QDRO). This is necessary for the splitting of any pension or 401K. However, military pensions, IRAs, and other types of investments and accounts will have their own rules in how they should or can be split during a divorce.

You should understand that accounts can be split without tax penalties. However, QDRO and other documents instructing the splitting of assets must be filed before the divorce is finalized. 

Additionally, you do have the option of waiving your rights to retirement accounts in lieu of other property. For example, if most of the funds in your spouse's 401K were added before your marriage, then you may choose to leave the account to your spouse. However, you may ask for personal property in your home instead that equals the amount that you would have been entitled to.

To ensure that a fair and legal agreement is drafted during a divorce, make sure your attorney has all financial documents. This includes all investment, retirement account, and bank records.

If you want to know more about finances and how they are affected by a divorce, speak with a= divorce attorney at a law firm like Dionisio Law