You may need the help of a financial planner and a divorce attorney to ensure your needs are covered after divorce.
At any stage of life, divorce can be an extremely stressful and disruptive event. However, when couples divorce in their 50s or later, the financial repercussions of divorce become a special concern. If you are not careful, divorce can shatter your retirement dreams. You may have to continue working much longer than expected, and/or adjust to a lower standard of living than desired. If you are seeking divorce late in life, it is essential to protect yourself and your future by engaging a qualified financial planner who can help you understand your future needs as well as an expert divorce attorney who can help you account for these needs in your divorce decree. Here are the top 5 financial mistakes these experts should help you to avoid.
Keeping a Home You Can’t Afford
No matter how many memories may be attached to the family home, think carefully before you decide to keep it. If you have a mortgage, remember that you’ll be solely responsible for the payments plus all the other expenses related to the home. If there is any risk of you being unable to make payments alone you probably should not risk holding on to the home. Even if you own your home outright you may be better off selling it and putting the cash into other investments.
Getting Surprised By Debt
When divorcing later in life, you have fewer years of earning power left and therefore less time to recover from any unexpected debts you may get saddled with. In California, you are responsible for half of your spouse’s debts, even if they are not in your name. Be sure to plan for this when drafting a divorce agreement! The best way to uncover debts your spouse may have hidden from you is to order a credit report.
Ignoring Tax Concerns
Remember, every financial decision you make during your divorce will have some sort of tax consequence. With the help of a financial planner, you can estimate the tax burdens or advantages that may be acquired if you accept monthly alimony payments rather than a lump sum, keep the family home or sell it, let your spouse buy you out of certain assets, etc.
Incurring Penalties on Retirement Savings
When dividing retirement accounts, remember that many types of accounts carry penalties for withdrawals made before age 59.5. To avoid losing 10 percent of your account to a penalty, consider incorporating a Qualified Domestic Relations Order in your divorce settlement that will allow you to make a one-time withdrawal from a 401k or 403b without penalty.
Forgetting Health Insurance
Healthcare costs tend to rise as people age, so you definitely don’t want to find yourself stuck without insurance after a late-life divorce. Whether you decide to stay on your spouse’s insurance plan for up to 36 months through COBRA or get your own insurance immediately, be sure you price out all your options and have a plan for affording them post-divorce.
