Divorce has a way of derailing the best-laid retirement plans as many Texas residents have come to learn. Instead of heading off into retirement together with the nest egg they accumulated over the years, divorcing couples find themselves divvying up their retirement funds and ending up with less savings than what they planned to take into their golden years. To make matters worse, divorce negatively impacts one’s income, making it harder to rebuild those lost savings.
The average divorced person has $10,000 less in retirement funds than someone who is married. Women are hit particularly hard. Their household income upon divorce, on average, is 47 percent less than during marriage. In contrast, men have 25 percent less household income following divorce.
These statistics underscore why retirement planning should go hand-in-hand with divorce. One of the biggest mistakes one can make when divorcing is failing to take retirement needs into account during property division. For many people, getting a share of their former spouses’ 401(k) plans and pension benefits should be a bigger priority than getting the family home. The home may be difficult to maintain properly on a single income, making it even harder to rebuild depleted retirement funds.
Someone who is awarded a share of an ex-spouse’s qualified retirement plans in divorce will be able to establish a new account in his or her name within the employer’s plan or roll the benefits into an IRA. An IRA may be better for future retirement planning because it allows more control over the portfolio. If the person subsequently remarries, he or she may consider entering into a pre-nuptial agreement to protect the assets. A qualified family law attorney in Texas, can help with drafting an appropriate agreement.
Source: CNN Money, “Rebuild your nest egg after a divorce,” Beth Braverman, Donna Rosato and Penelope Wang, Feb. 21, 2013