Study Says Divorce Hurts Your Finances
It should not come as a surprise that the new study says divorce can harm each partner’s future and current finances in many ways. That information comes from a recent study conducted by the Center for Retirement Research.
Not only do divorced spouses have to contend with paying separate sets of bills for individual households—when they used to share those costs under one roof—but they also are responsible for legal fees associated with the divorce. In fact, the study suggests that retirement for divorcees likely should be classified as “at risk.” The National Retirement Risk Index says that a person’s retirement is “at risk . . . if the projected rate to replace current income in retirement falls 10 percent or more below the level needed to maintain current living standards.” Approximately 53 percent of divorced households have “at risk” retirement, while that figure drops to 48 percent in households where there was no divorce.
Financial Benefits of Divorce in Retirement
Yet the news is not all bad. One potential benefit of divorce when it comes to dividing retirement assets is that you may be able to take an early withdrawal from your retirement account—such as a 401(K) account—without paying the early withdrawal penalty. To avoid the penalty, the retirement funds must be divided as part of the divorce proceedings. Then, through what is known as a Qualified Domestic Relations Order (QDRO) a portion of one spouse’s retirement account can be rolled over into the other spouse’s retirement account or can be paid in cash to the other spouse. In most cases, the spouse receiving the payment will not have to pay the 10 percent early withdrawal penalty.
As an article from AARP discusses, spouses an also benefit from Social Security benefits even if they are divorced. If you were married for 10 years or longer, even if you get divorced, you can be entitled to Social Security benefits from your ex-spouse as long as you are 62 years or older and are currently unmarried. In some cases, when an ex-spouse dies, the surviving spouse—even if they were divorced prior to death—may be entitled to receive the ex-spouse’s Social Security benefits if the marriage lasted for at least 10 years and the surviving spouse is 60 or older.
Contact a Chicago Divorce Attorney