Finances after Divorce and Planning for Retirement

October 08, 2010 (Press-News.org) Financial planning and division of property and assets are important to both parties in a divorce. There are many assets and financial holdings in a marriage that need to be adjusted when going through a divorce - and one of the largest of those considerations is retirement benefits.

As You Divorce

One important step in dividing any retirement assets is filing a Qualified Domestic Relations Order, or QDRO, with all retirement fund administrators before the divorce papers are finalized. A QDRO is an order or decree that acknowledges the right to your share of a former spouse's assets such as alimony, child support, property rights and retirement plans.

Another important thing to take note of is eligibility for a portion of your spouse's Social Security payments. If you have been married for at least ten years, you may be eligible to file a claim for shares in your ex-spouse's Social Security plan once you near retirement and are eligible for benefits.

After The Divorce

One of the biggest adjustments to living alone is living on a single income. Living expenses that used to be shared now fall solely on one individual's shoulders. For some people, this is not a problem, but for many others - especially a spouse that is used to a certain standard of living or who has not been in the workplace in some time - learning to manage finances and save for retirement is a struggle.

Recent divorcee Carol Kenney lives on a fixed income of disability and Social Security payments. "I have found myself in a new set of circumstances," Kenney said. "I was married for 28 years and suddenly now I'm single and reduced to living from one income."

When looking to the future, she is concerned whether she will ever be able to make any large purchases (like a new car), how to plan for the unexpected (such as health care costs) and whether her fixed income will continue to cover her living expenses throughout her retirement.

As a part of the San Diego Union-Tribune's Money Makeover, Kenney was given a free consultation with certified financial planner Nathanial Ritchison. Ritchison provided the following tips:
- Work out a personal budget and track your expenses. Extra funds received (such as alimony for Kenney) can be saved in an IRA account and provide you an emergency reserve.
- Steer clear of new loans for big purchases. Think of staying on budget and downsizing your living space.
- Carry sufficient insurance coverage. Making sure you have proper coverage will decrease your chances of needing emergency funds to cover unexpected health care costs or to replace household goods in the event of a fire.
- If you are close to retirement already, stay focused on financial stability rather than growth. Since Kenney was already living on a fixed income and has no reason to expect her living expenses to change, she should be able to maintain her lifestyle even once she is "retired." For others, that are not living on a fixed income, the same ideas apply: keep expenses down and try to save any extra funds in an IRA. Remember that you probably received a share of retirement benefits during the divorce and you may be able to claim a portion of your spouse's social security benefits once you are eligible for benefits, so you just have to learn to live within your means.

Most importantly, when going through any kind of financial changes after a divorce, make sure you have all of your tax responsibilities taken care of by talking to a divorce attorney who is experienced in handling tax, retirement and financial matters.

Article provided by Diamond Law Firm
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