Marital breakups in California and across the United States seem to be declining. Yet, for older spouses, the opposite is happening. Reportedly, the divorce rate for Americans who are 50 and older has skyrocketed in the last few decades. Gray divorces are often complicated, as ending a long-term marriage typically means the couple has acquired more assets. Older adults usually have significant retirement savings, which will be affected by divorce.
Retirement accounts
Individual retirement accounts (IRAs) and 401(k)s cannot be joint accounts and may only have a sole account holder. Yet, each spouse may have contributed money to one or more of these accounts during the marriage. During the divorce settlement process, the individual who holds accounts with larger balances may be required to transfer funds to their spouse’s account. If the account is a 401(k), a qualified domestic relations order (QDRO) will be necessary to specify how the funds are be divided. IRA assets do not require QDROs.
Things to keep in mind
There are a few things to keep in mind when moving retirement funds. The spouse who is receiving money may qualify to have a portion of 401(k) funds disbursed directly for immediate use. Although there is a 10% early withdrawal penalty for those younger than 59½, these distributions are usually exempt. Rolling funds directly into the receiving spouse’s retirement account is the most tax-efficient method.
Legal assistance
It’s no secret that high-asset divorces can be complex and stressful. For those in California who have questions or may be facing a divorce, consulting with an experienced legal professional is recommended. A seasoned family law attorney can give invaluable guidance and help to provide a plan for the years to come.
