How Divorce Affects Retirement

There are few things that can negatively affect your retirement plans more than a divorce in a community property state like California. If you face a divorce, there are many aspects of your short-term and long-term finances that must be worked out between you and your ex, either in the courts or by settlement. A face-to-face meeting with an experienced San Jose family law attorney is recommended before you proceed with the divorce. Generally, when you know what to expect before you proceed you will be better able to make the required adjustments to your retirement plans. Below is a short summary of some of the issues that most retirees should expect to face because of divorce. Obligations for Child Support If there is a child and/or children who will still be dependent during the divorce, there will of course be a discussion of custody and child support. Your planned retirement will not terminate or end your obligation to support your minor child (ren), and you should be aware that California’s guideline formula for child support would presumptively apply. Child support is a legal obligation that comes before any other obligations including saving for retirement and/or having a comfortable retirement. You should check to see how you should rework your budget to include child support after a divorce. Obligations for Spousal Support The calculation of spousal support (alimony) can be much more complex than the formulaic child support calculation, but these court ordered payments will still take legal precedence over your needs to save for retirement and/or live at the lifestyle your own earnings should allow you to live at. If you did not work during the marriage this may sound good to you, but the courts regularly order non-working spouses to look for work. A failure/refusal to seek work when ordered to do so can result in a termination of spousal support (alimony), so interruption of a planned life of leisure is also something you might need to consider. In either case, your retirement plans may suffer. The Funds for Retirement California is a community property state, and any funds that either spouse has saved up for retirement while married, no matter how long term, may have to be split up, 50/50. These assets do not have to be owned or titled by both parties to require their split after a divorce; this is the nature of the community property statutes in California. Assets that you have built up completely on your own can be split between you and your partner by the court in a divorce. This includes any assets that you built up in spite of the interference of your spouse, such as where you had to struggle to save the funds and overcome your spouse’s demands to spend everything. Regarding tax advantaged retirement savings like 401(k) plans, IRA’s, etc., an experienced divorce lawyer may be able to negotiate an agreement with the opposing party that will leave these long-term assets undistributed until their term periods are finished (generally after age 59 ½). A Qualified Domestic Relations Order (QDRO) dividing retirement plan assets without incurring any tax penalties now and allowing each party to withdraw their portion of the retirement funds when they retire is an example of this. Other Acquired Assets In California, every asset you own at the time of divorce is legally presumed to be up for grabs in the divorce. There are numerous legal exceptions to this, such as where you inherit a home during the marriage, but it will be your burden to prove that the home or other asset(s) were inherited. An experienced San Jose divorce lawyer like Tom Stutzman will know how to prove where you got the asset(s) from and/or whether your spouse owes you a reimbursement claim that can be used to keep some asset(s). Making sure you get your fair share of the community property estate is the reason that drives many people to hire a good experienced divorce lawyer. Medical Coverage After A Divorce Medical coverage can, and very often does, come to an end after a divorce. Retirement regularly will also cause medical coverage to end. Even a good divorce lawyer is not a medical doctor, so you must be able to tell your attorney whether you have serious concerns regarding health care costs and/or imminent medical issues. Sometimes the potential costs of another heart surgery could dwarf all the other financial considerations in a divorce. It would be foolish to ignore a potential medical bill that could be larger than your entire lifetime savings while focusing only on how to divide a couple cars and a small (or even large) retirement plan. Your spouse’s right to medical care coverage provided by your employer while you remain married and employed is protected by the family code, but after the divorce Judgment is entered medical coverage becomes much more complicated. There is no residual property right to continued free medical care coverage from a former spouse’s employer after the divorce. The loss of medical care coverage is relevant to the marital standard of living, a factor considered when setting spousal support (alimony). COBRA can allow, at a higher price than most will want to pay, continued medical care coverage for a limited time. At the time of this writing the extent to which the much litigated Federal Affordable Care Act may impact and/or simply change the insurance options is uncertain to this family law attorney. If your spouse’s employer was providing your medical insurance, you should look into what replacement insurance coverage will cost and consider presenting that point at any hearing for spousal support (alimony). No matter which side of the table you are on, an experienced San Jose divorce attorney will inform you and help you navigate through the difficulties and confusing issues of how divorce effects your retirement planning.