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How Divorce Can Impact Your Retirement

Dec 07, 2020 3 min read Kate Ashford

Key takeaways

  • Divorce can affect your savings—and your ability to prepare for the future.
  • After a divorce, it's crucial to make a new retirement plan.
  • Dividing assets isn't as easy as it seems. Get help from a financial professional.


Divorce throws a financial curveball no matter how you look at it. First, there's the cost of the divorce itself (about $15,500 on average, according to a survey conducted by legal resource Nolo Opens in new window). You may now also have to maintain two households, not to mention potential child or spousal support.



But divorce also moves the needle on your retirement plans. Here's what you should know.

You're on your own

First, you'll need to think about all the items you might have assumed would be combined in retirement that now won't be.

For instance, health care costs and insurance coverage will now be yours alone. You'll be handling all your own living expenses, from rent or mortgage, to relocation costs, to all utilities and home upkeep.

What that means is you'll likely need more income than you expected in retirement to make ends meet. Take the time to adjust your estimated living expenses so they reflect your new situation. A cash-flow estimator Opens in new window can help.

You might lose a chunk of your nest egg

When a marriage dissolves, your joint assets dissolve with it—and are split according to your state's divorce laws. Generally, whatever you've both accumulated in retirement accounts during your marriage will be divided equitably between you and your ex-spouse.

You may need a qualified domestic relations order (QDRO), a legal document that grants one spouse the right to a portion of the other spouse's retirement assets. This order also removes taxes and penalties from any early distributions of those assets.

There's also the family home to consider. Sometimes one spouse will arrange to keep the house in exchange for their claim to half of a retirement account, such as a 401(k). Be sure to talk to your financial professional before making this kind of agreement. In the end, it might be financially smarter to downsize your home and take half of the retirement money.


You might not be able to save as much

If your expenses are higher after the divorce—and they frequently are—you might find yourself unable to save as much as you previously were for retirement. So if you were putting away 10% before the divorce, now you may only be able to put away 5%.

If that's the case, examine your budget to make sure you've cut out as many extra expenses as possible. You might consider seeking a better-paying job or taking on some side work to make up the difference. You may also feel the time is right to ask for a raise, although that conversation should always be around job performance, not your personal financial situation.

If your savings rate hasn't been affected, consider bumping up your contributions to help rebuild your nest egg and prepare for a possible solo retirement. If you're 50 or older, you can put “catch-up" contributions into your retirement accounts—an extra $6,500 into a 401(k) (for a total of $26,000) and $1,000 more into an IRA (totaling $6,500), per 2020–21 IRS guidelines.

Your benefits could be affected

If you're married, once you reach age 62, you're entitled to your own Social Security benefits or one-half of your spouse's Social Security benefits as calculated at their full retirement age Opens in new window—whichever is higher.

If you're a nonworking spouse or the lower wage earner in your marriage, that's an important benefit. If you're divorced, the same rules apply, as long as you were married for 10 years or longer and the benefit recipient is not remarried. But if your marriage was shorter than 10 years, or if you remarry, you're no longer entitled to Social Security benefits from your ex-spouse, so plan accordingly.

You'll need to make a few legal changes

Once everything is finalized, don't forget to adjust your paperwork—including the beneficiaries on your retirement accounts and life insurance policies, and the people you've named in your estate planning documents. Otherwise, your ex-spouse may remain the person who can make decisions for you following a serious health crisis, or the beneficiary who gets the bulk of your assets if you die first.


What you can do next

Talk to a financial professional about your new retirement picture and what it means for your saving strategy. A retirement calculator can help you estimate whether you're on the right track. You may also need to meet with your estate planner or legal advisor to discuss how your new arrangement affects your legal documents.


Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others.


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