Baby boomers have experienced divorce at record rates throughout their lives. This is no less true as they near retirement age. Fortunately, for many baby boomers divorce later in life has some positive aspects. Many baby boomers approach retirement with an intent to focus on personal growth, expand hobbies and live healthy, active lives. For marriages in which two people have grown apart, divorce may be a better option to lead a fulfilling life in retirement.
Divorce among baby boomers has been such a common occurrence it now has its own term: “Gray divorce.” In some ways a gray divorce can be simpler than other marriage dissolutions, since often children are out of the house and custody matters don’t need to be involved. Aging couples with children often want to remain cordial so that holidays can be spent with the entire family, creating less tension in the divorce process. However, couples near retirement may have a range of assets between them that must be divided in divorce. Such assets often include real estate, 401(k)s and business ownership interests. In order to ensure each spouse can live according to the same standard of living experienced during the marriage, the divorce must be planned and negotiated carefully.
Fortunately there are many ways a divorcing couple can equitably divide assets, even in the absence of a prenup. This includes retirement accounts, which can be the largest asset involved in a divorce.
Nearly 50 million Americans have a retirement savings plan through work. It is also a commonly undervalued asset when divorcing. While many financial and emotional reasons exist to keep the marital home, for example, retirement accounts generally have significant value when considering day-to-day expenses and liquidity in retirement. That is why dividing retirement assets fairly is so important in a gray divorce.
Qualified domestic relations orders
A qualified domestic relations order, or QDRO, is an order that gives an ex-spouse a right to a portion or all of the other’s retirement account assets. In essence, a QDRO establishes one ex as the co-beneficiary of the retirement asset. The main benefit of a QDRO is that it can be split without bringing the associated tax or penalties for an early withdrawal. Without a QDRO, any money taken from the retirement account and given to an ex is treated as a taxable distribution. Once a QDRO is included in the divorce decree, the spouse who receives income from the retirement asset must pay the taxes.
While there are certain commonalities to gray divorce, individual circumstances vary and negotiating a fair settlement depends on the assets of the couple, their needs and wants, and the goals of the people involved. For example, divorce mediation may be appropriate for couples who still have the ability to work together. For others, it might be necessary to stringently protect rights and interests in order to avoid one ex becoming financially insecure after the divorce is final. People in Connecticut considering divorce should speak to an experienced family law attorney to discuss their situation and the best legal options available.