When you’re in the middle of a divorce, it’s hard to think about anything but the present. Immediately post-split, things can seem dire for your wallet and savings. But the future is also an issue. What will your finances look like when you’re ready to retire? Will you even be able to retire? Even if your most pressing concern is how to pay the bills next month, it’s smart to make planning for retirement a priority as you’re divorcing.
Start at the beginning
Maybe you weren’t the breadwinner in your marriage, or perhaps your spouse took care of the bills—no matter, now is no time to plead ignorance. Get educated ASAP about your assets, debts, income, and expenses prior to filing for divorce.
And make sure you understand the true value of your assets and investments to avoid regrettable and costly mistakes. “A $500,000 house may not have the same value as $500,000 in stocks or even rental property due to tax implications, market volatility, or other factors,” says Lisa Helfend Meyer, certified specialist in family law and founding partner of Los Angeles-based Meyer, Olson, Lowy and Meyers.
Seek help
Should you work with a divorce financial analyst? “Having experienced professionals on your side is indispensable. The more information a client can put together beforehand, the easier it is to immediately start crafting a strategic plan,” says Meyer. But the burden of figuring out your financial future isn’t only on you as the divorcing party. Many legal teams work with forensic accountants and other financial consultants to characterize, value, and divide property.
Prepare for the unexpected
While married life sustains its fair share of curveballs, the same is true with divorce, and the settlement you end up with may not stay the same forever. “People lose jobs, get sick,” says Tanya Helfand, divorce attorney with Helfand & Associates in New Jersey. “Even if you have a contract, the courts are sensitive to the fact that life changes. You have to prepare.” Which means, if you’re counting on alimony to pull you through the golden years, don’t.
Be prepared to save
Many divorcing individuals come into their attorney’s office unprepared to manage the costs ahead of them for the divorce, let alone life from here on out. If “budget” was a foreign word to you in the past, consider it a prominent part of your vocabulary now. “I counsel clients on the importance of saving a portion of their support. For the supporting spouse, we try to limit or reduce the amount and length of support. For example, if they pay higher support for a shorter time, this may free them up in later life,” says Meyer.
Know what you want
Knowing what you want in your divorce can help expedite matters (if you are so inclined), and being willing to bargain can give you an edge. “Any retirement accounts acquired during the marriage are subject to being split between the spouses, either at retirement age or sooner. If there is a 401K, you could even split it right now without any tax-effect and get the money during the settlement,” says Helfand.
“If someone has a pension, and there are other assets, we value those pensions using actuaries and then you can off-set it,” Hefland continues. “For example, if there’s a house involved, you could theoretically split them: He keeps his pension and she keeps the house, assuming the values are the same.”
Even if you can work through these financial issues ahead of time, you might want to consult a lawyer to make sure you have thought through all relevant considerations.
Acknowledge limitations
Taking the long-range view of your financial future and where you will be in 10 or 20 years is essential. “Financial settlements take on heightened importance when the supported spouse has limited earning power after being out of the workforce for years or the supporting spouse has fewer years to work,” says Meyer. And if you’ve been a stay-at-home parent for the duration of your marriage, you are now in a tenuous position.
Meyer recommends that supported spouses negotiate for a well-rounded portfolio of assets that would include a residence, retirement, and non-retirement financial accounts. It’s also a good idea to negotiate for support beyond the other spouse reaching the age of retirement.
Plan for the worst
Of course as people near retirement age, their health and wellness can change along with their job and financial status. Worst-case scenarios can and do happen. “Imagine you have young children and are receiving child support, or that you are in your 50s or 60s and receiving spousal support and something happens to your ex. You could find yourself suddenly without income,” says Meyer. “Having a requirement in your settlement that your ex maintain life insurance to ensure continued support payments upon his or her death could save you from possible financial devastation.”
Think clearly
Divorce is an emotional roller coaster, and it’s possible to make some decisions along the way that could negatively impact your retirement. “This is the time to lead with your head and not your heart. Don’t allow feelings of guilt or the desire to extract revenge cloud your judgment or make you lose sight of your long-term financial goals and needs,” says Meyer.
For example, you may be attached to the family home, but can you qualify for a mortgage on your own and afford the taxes and upkeep? Take emotion out of things and stick to dollars and cents so your retirement is a comfortable one.
