Investing and Retirement Divorce: Understanding the financial facets

When we enter into a marriage, we assume it’s for life. The reality, however, is that many marriages ultimately end in divorce. Sometimes, the dissolution occurs over a long period of time, where both partners can see the writing on the wall and begin to prepare themselves both emotionally and financially. Other times, however, the separation can come as a surprise.

Even marriages that have endured for a couple of decades are not immune to breakup, as witnessed by the significant rise in what is sometimes termed “gray divorce.” The divorce rate for adults aged 50 and older doubled from 1990 to 2010 and then plateaued in the past decade.^{Disclosure 1}

Certainly, nobody wants to plan to fail, but the fact remains that failing to plan could have far worse implications. Don’t wait until some unexpected event forces you to scramble to put your financial house in order. Do it now while you have the luxury of time and minimal pressure.

Whether or not you ever have to deal with a divorce, both spouses should still take time to get familiar with the family’s balance sheet. Make sure you have a clear understanding of all your assets and liabilities.

As a couple, gather and review all important documents such as wills, trusts, and insurance policies. Keep them in a safe place along with any account numbers, user IDs, and passwords. In the same place, keep records of the names and phone numbers of contacts at the financial institutions you work with.

Establish at least one credit card account that’s solely in your name. Too many newly divorced women face an uphill battle to establish personal credit because all their accounts were held jointly. Also, don’t just assume you’re the named beneficiary on your spouse’s accounts and insurance policies—especially if this is a second marriage for your spouse.

You’ll also want to take time to understand the tax implications of various assets. Suppose you own a $500,000 traditional IRA, a $250,000 brokerage account, and a $250,000 Roth IRA. Would you willingly take the $500,000 IRA in a settlement and let your spouse keep the brokerage account and the Roth? Both parties end up with $500,000, right? No.

That’s because the traditional IRA is funded with before-tax dollars. Taxes will need to be paid on those assets when the holder begins to take distributions. It’s really worth considerably less than the combined brokerage account (which is comprised of after-tax dollars) and the Roth IRA (which has tax-free distributions in retirement^{Disclosure 2} ). This is why tax implications are so important.

Lastly, keep in mind that, in any marriage that’s lasted at least 10 years before divorce occurs, one spouse may be entitled to additional benefits.

• Courts in some states retain the right to order that alimony be paid to the lesser-earning spouse for as long as needed if the higher-earning spouse has the ability to pay.
• As long as a lesser-earning spouse remains unmarried, once they reach retirement age, they’ll also be eligible to collect spousal Social Security benefits based on their ex-spouse’s earnings record.
• If the couple was married for at least 10 years while one spouse was on active military duty, the other spouse is entitled to receive a percentage of military retirement benefits paid directly to you by the military finance office.

Hopefully, you never have to deal with the upheaval of divorce. But if you do, remember to think team—not just attorney. People tend to rely exclusively on their attorney to handle all aspects of their divorce. It’s incredibly helpful, however, to bring as much experience to the situation as possible. By creating a team, including your attorney, your accountant, and your Truist Wealth advisor, you’ll be better able to assess the impact of various decisions on all aspects of your personal and financial life.