Many older couples considering divorce often wonder if splitting up is financially feasible as they approach retirement. It is important to consider various factors such as marital assets to be divided in the divorce; how long each party intends to work before retiring; whether alimony will be awarded; social security and other defined benefits; and anticipated expenses when single versus married.
Dividing Marital Assets in a Divorce When Retirement Looms
For starters, when a couple divorces, their assets will be divided and each will have to live on their share. While common property states divide marital assets 50/50, other states including Illinois, divide assets equitably, which typically results in each spouse being awarded a percentage (typically anywhere from 40 to 60 percent) based on the unique circumstances of their case.
Say for example a couple has one million in marital assets which might include retirement accounts and a family home, where a husband makes 200K a year and a wife earns 60k. If the couple divorces at age 50, the wife who earns less may be awarded closer to 60 percent of the assets since she will have fewer years to save for retirement and the husband earns more income to squirrel away. However, if both spouses are closer to retirement age – 60 and up – a court may decide on a 50|50 asset split because the husband’s income advantage will cease at retirement.
Financial Resources after Retirement
Illinois Spousal Maintenance
During the divorce, the court may order a higher earning spouse to pay spousal maintenance, aka alimony, to a lesser earning spouse at least while the higher earning spouse continues employment. Various factors are weighed in the award of spousal maintenance from the duration of the marriage to the age, employment history and earning capability of each party.
Social Security Retirement Benefits After Divorce
When each spouse retires, they will often look to social security benefits. The lesser earning spouse will have to decide if she or he is better of claiming their own work history or that of their ex-spouse assuming they were married for the required number of years. There may also be defined benefits in a pension from a former employer available.
A Closer Look at Marital Assets
As far as assets divided in the divorce, let’s assume that each spouse received 500K, or 50|50, in the divorce. If the value is trapped in illiquid assets such as a home, it is important to evaluate whether it makes sense to keep the home or consider other investments that might outperform residential real estate, especially when considering the expenses involved in the upkeep of a home. After divorce, downsizing and using any leftover proceeds to supplement a fixed income may be necessary.
If on the other hand, marital assets awarded in a divorce consist of securities or retirement accounts, some retirees elect to take a percentage of the principle each year to supplement social security benefits after retirement. If each spouse has 500K in retirement funds for example, taking just 4% of the principal annually to supplement social security would stretch financial resources across many years. Of course, taking a higher percentage is possible in order to make ends meet; individuals should work with a professional financial advisor to decide on the best financial strategy for retirement.
Evaluate Retirement Expenses Post Divorce
After determining what financial resources one has to work with, divorced couples who are considering retirement or are already retired will have to look at current expenses to see if the numbers add up. Pre-divorce, spouses shared expenses, but after the divorce individuals must consider the cost of maintaining two households. Will social security and a draw on retirement funds cover the mortgage, house taxes, repairs, insurance and utilities in the current dwelling? Will the financial resources cover outstanding bills, health insurance, clothing, a car, or a vacation? If not, it may be a matter of picking up part time/ post retirement employment or downsizing to make it work.
Contact Our Libertyville Family Law Team for Help Today
People considering divorce after 50 have unique concerns with retirement not far off in the future. It is important to work with an experienced divorce lawyer who can advise you on marital asset division and whether spousal maintenance will be payable to understand what you have to work with after divorce and into retirement. Contact divorce attorney Ronald L Bell & Associates PC to schedule a consultation to discuss your case today.