Divorced Households Often Struggle During Retirement

Divorced households in North Carolina and around the country have about 30 percent lower net worth than married households according to a study from the Center for Retirement Research, and they are also are less likely to have enough money to live comfortably during retirement. The study, which is based on data gathered from the U.S. Federal Reserve’s Survey of Consumer Data, was published online in June.

Figures from the National Regulatory Research Institute are equally grim. The Maryland-based organization says that 53 percent of divorced individuals are likely to struggle financially during their retirement years. Spouses who divorce in their 20s, 30s or even 40s still have plenty of time to rebuild their retirement savings according to financial experts, but those who are going through what is known as a gray divorce may be wise to approach property division negotiations with great care.

While a divorce is one of the few instances where funds can be taken out of a 401(k) account without incurring an early withdrawal penalty, spouses who have not yet reached retirement age will still be expected to pay income tax on the money. Spouses have traditionally been able to avoid this tax by forgoing retirement funds in favor of more generous alimony awards, and these arrangements have worked because the people paying spousal support generally gain more by deducting alimony payments than the people receiving it pay in tax. However, these rules will no longer apply when the provisions of the Tax Cuts and Jobs Act go into effect in January 2019.

Attorneys with family law experience may address these issues with older spouses before property division negotiations get underway, and they could suggest temporarily delaying divorce proceedings in certain situations. Nonworking spouses who have reached the age of 62 are able to receive Social Security benefits based on the contributions made by their working husbands or wives, but this rule only applies if the couple concerned were married for 10 years or longer.

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