During March to May 2021, online searches for information about divorcing in New York went up by 30 percent, and across the country there was a 27 percent increase in divorce lawyer referrals (compared to an 11 percent decrease during the same time frame in 2019).2

The overall stressors of the pandemic — financial, emotional, and physical — have greatly influenced well-being. In many cases, those stressors are also forcing some people to take a hard look at their partners. A New York based neuropsychologist has noted that COVID-19 simply amplified the issues that were already present in many relationships.2 Tensions are high, behaviors are unprecedented … and there’s nowhere to go.

During this time period, women statistically took a harder financial hit than men, as COVID-19 drove 2.5 million women from the workforce. 165,000 women over 20 years old dropped out of the labor force between March and April 2021.11 One major factor is because women are more likely to be single parents and caregivers than men. And although women are more risk averse when it comes to financial matters, they are more likely to live paycheck to paycheck than men.12 Certainly, workers of all genders experience stress around work-life balance. However, after a divorce women have unique challenges that can take a more severe toll on their finances, making their retirement planning all the more vital.

So, if you’re struggling through a divorce, you’re clearly not alone. Divorce is expensive  — a median price tag is $7,5005 — and getting a handle on the financial repercussions from this life change is key to overall financial and mental well-being. Retirement plans are often critical assets targeted by both spouses, particularly when a nonworking spouse does not have any savings. At a time when financial protection is top of mind, retirement strategies for life after divorce may require some careful consideration.

 

Knowledge is power — and potentially more money

Most retirement strategies have specific procedures and rules that must be followed when dividing the assets in a divorce.3 Don’t follow them, or simply don’t know them? That might lead to a forfeiture of some or all of the assets, meaning that you may receive nothing from your spouse regardless of any previously agreed upon arrangements.10 So know where all of your and your partner’s assets are.

Gather your family’s financial information in one place so you can view tax returns, 401(k) records, IRAs, annuities, pensions, whole life insurance cash value assets, and cost assessments of property such as homes, cars, artwork, items in safety deposit boxes, jewelry, and furniture. If you happen to own a business together, don’t forget the fair value of your business. Assemble bills, debts, and note any ongoing costs.2 You’ll need proof of ownership to access assets in the future once you are retired, so make certain that you’re named in writing as an owner, recipient, or beneficiary – whichever applies. If you are receiving or paying for alimony or child support, it’s important to have insurance policies in place to help ensure your income in the event of injury, illness, or death.

Know what you’re entitled to: For the spouse with the lower income

If you are the spouse with the lower income, make sure you understand your eligibility for Social Security and retirement plans before you sign your name to the divorce papers. After a divorce, both spouses have to adjust, but the spouse with the lower income has to adjust more.7 So make sure that you exercise your rights; spouses not enrolled in a retirement plan have the right to obtain information about all retirement plan balances or account balances that the other partner owns.4

After 10 years of marriage, you may qualify for Social Security payments based upon your spouse’s higher income (with some stipulations).3 That could mean potentially more income each month. Some couples close to the 10 year mark actually opt to stall with a legal separation first, so that the marriage is counted for spousal Social Security benefits.

Protecting your retirement assets after divorce: For the spouse with the higher income

During the divorce proceedings, take a look at what your new tax bracket will be. Single filers deal with higher limits, so it pays to check whether you qualify as head of household or another tax filing status that is more financially beneficial.9 If you’re over 50, take advantage of the “catch-up” contributions offered by your IRA and 401(k), which now allow greater annual contributions to replenish your store of retirement savings.8

Prenups are for anyone who wants to protect their retirement assets, not just the ultra-rich

A prenuptial agreement may be the most straightforward way to protect your retirement assets if you eventually split up, especially if one or both of you have had children prior to this marriage. “Too often, people think that prenups are only for affluent couples,” says Michelle Lee Fine, Founder and CEO of Cornerstone Wealth Advisory in New York. “That’s a myth; all couples should consider a prenup.” A prenup is not only for the very rich; while it does establish what kind of support a spouse will pay to the other spouse during or after a divorce, it can also establish that support will not be available if the parties later divorce, says Fine.13

Every state has its own laws concerning the distribution of assets and properties during a divorce. A prenuptial agreement can bypass many of those laws if the couple agrees ahead of time who will get what in the event of a divorce, such as the marital residence.13  If you are divorcing, re-examine your agreement with an eye towards whether your attorney at the time left some room for adjustments that could benefit you and your spouse depending upon your circumstances at the time of divorce.4

The bottom line

As is usually the case, approaching retirement strategies after divorce can be more beneficial and less stressful the more research you do on the subject. Hire a professional, gather as much information about your assets as you can, and start to recreate your retirement budget. After the pandemic, it’s certainly been a year of unprecedented life changesstaying informed and planning ahead will be to your advantage as you embark on this latest life change.


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