With 40 to 50 percent of marriages ending in divorce, it is important to understand what impact your divorce can have on your retirement. From social security benefits to life insurance, the following provides information on the most important issues you need to be aware of if you're a retiree considering divorce.
1. Social Security Benefits
For an ex-spouse to be eligible to receive Social Security retirement on your record, your marriage must have lasted at least 10 years, according to the Social Security Administration. For retirement benefits, they must also be over the age of 62 and be entitled to fewer benefits on their own work record than they would receive based on your record. However, if he or she remarries, they cannot collect these benefits unless the later marriage ends.
A divorced spouse will receive benefits equal to one-half of your full retirement amount if they start receiving benefits at full retirement age. However, if they are eligible for benefits on their own record, they will receive this amount first. If your retirement benefit is higher, he or she will also receive a combination of benefits that equals the higher amount.
2. Cobra Health Insurance
In the event of a divorce, your spouse's insurance company may be required to continue your coverage for a period of up to 36 months. This is based on the COBRA Act of 1986 and only applies to companies that employ 20 or more people. The plan administrator must be notified of your legal separation or divorce within 60 days. The administrator will give notice to your ex-spouse of their right to continue COBRA coverage for 36 months.
In the event COBRA does not apply in your situation, your spouse's health plan may still be required to provide health coverage. However, this varies from state to state.
3. Pension Plans
If you or your spouse has a pension plan, a qualified domestic relations order (QDRO) must be created during the divorce proceedings. This establishes your ex's legal right to receive a certain percentage of your benefit payments or your plan account balance. This also allows him or her to withdraw their share and roll it into his or her own IRA. When your ex-spouse receives the money, whether in the form of an annuity, pension, or withdrawal, he or she will become responsible for paying any related income taxes.
4. Maintaining Your Ex as Your Life Insurance Beneficiary
Just because you've divorced, it doesn't mean your ex-spouse can't still be your life insurance beneficiary. This especially makes sense if they rely on your payments to survive or when children are in the picture.
If you do not have any financial obligations to your spouse, it is your decision to change the beneficiary. While you can name your children, they cannot directly receive benefits until their 18th birthday. In this case, the company would hold the money or the courts would appoint a trustee over the account.
Divorce is rarely easy, especially in regards to retirement and financial matters. The information discussed above should provide insight into what to expect if you find yourself in this situation. You can also get more information by talking to a divorce attorney like Mira Staggers White.Share