Financial considerations for divorcing baby boomers
Between 1990 and 2009, the rate of baby boomers divorcing grew significantly, according to a study out of Ohio State University’s Institute for Population Research. Researchers focused on national surveys for their study and found that the divorce rate among adults over the age of 50 doubled.
Although reasons behind the divorce varied, there are common issues that those divorcing within this age group need to be aware of. Without careful planning, newly single boomers could face financial difficulties. As a result, financial and legal experts are advising boomers to review divorce settlements carefully before finalizing the divorce process.
Top three financial considerations to review
Some areas of particular financial concern include:
- Benefits and retirement
Newly single boomers may pay more in taxes than their married counterparts. According to a recent report by Fox Business, divorcees can pay more both in income tax and by loosing deductions such as the primary residence deduction. Unless able to purchase a new home, it is likely only the person who leaves the divorce with the family home will be able to take this deduction.
An additional financial consideration involves benefits, particularly those that impact retirement. Many couples rely on pension plans to finance their retirement. Married couples over the age of 50 are generally able to contribute $46,000 while singles can only contribute $23,000.
Generally, retirement accounts like 401Ks and pension plans are treated as marital property. As a result, they can often be split in a divorce settlement. In order to ensure the account is split, a qualified domestic relations order, or QDRO is often required. This document provides instructions on how the account is separated and helps to avoid any potential tax penalties.
It is also important to take all debts into consideration when putting together the divorce settlement. This settlement should specifically outline who is responsible for the various types of debt the couple may have accumulated over the course of the marriage.
Devising a divorce settlement that suits your needs and takes all these factors into consideration can be difficult. If you are considering a divorce or have recently filed divorce papers it is important to contact an experienced divorce lawyer to discuss your situation and better ensure your interests are protected.