Planning for retirement is a decades-long goal, and one that not everyone has the desire or resources to pursue. To complicate planning further, according to a recent survey, a divorce can be almost as hard on your retirement plans as a recession.
However, you can take steps to protect your retirement and your finances during a North Carolina divorce.
- Avoid a lengthy, courtroom divorce. You take on more legal fees the longer your case takes to resolve. And having to go to court leads to added legal costs as well. To minimize these expenses, you can opt for alternatives to litigation, like mediation or collaborative divorce. These methods can result in faster resolutions and lower legal fees, which leaves you with more money for your future.
- Make sure you have a Qualified Domestic Relations Order or appropriate document completed to legally effectuate the transfer of any retirement accounts being divided pursuant to your divorce. As a recent USA Today article on retirement and divorce discusses, dividing assets like retirement accounts can lead to massive financial penalties if not done correctly. A Qualified Domestic Relations Order is required to divide or transfer accounts for qualified plans like 401(k)’s. Non-qualified plans may still require a Domestic Relations Order or an IRA Rollover Order to accomplish a transfer of retirement assets. With a QDRO or DRO there are no tax penalties to either party related to the transfer of funds to the other spouse pursuant to the divorce. Many people falsely assume that if their settlement order or agreement specifies that they are to receive the funds they automatically receive them. This is a false assumption. Make sure any order or agreement specifies what has to be done for the transfer to occur, which lawyer is responsible for drafting this, and what timeframe this needs to occur in.
- Consider the cost of keeping property. Keeping property can be more expensive than you expect, so keep in mind your post-divorce financial status when deciding whether you want to (and should) keep property like a marital home. It may be too expensive to pay the mortgage and keep up with maintenance costs when you have one source of income instead of two. In this situation, it may be best to sell the property to reduce expenses.
Divorce changes people’s plans for the future. And while it is impossible to predict what that future will look like, these are some of the steps you can take to minimize financial fallout and protect your retirement plans. You can discuss these and other options in more detail with your attorney.