Planning for your later years does not just happen in a short time. Saving for retirement is a decades-long process that you have already put so much time and hard work into, and now your divorce could compromise all of that. You need to be certain that you understand how to protect your savings.
You will need to familiarize yourself with at least one term that you might not have heard of before – a qualified domestic relations order. A QDRO is essential for avoiding taxes and other penalties when withdrawing retirement funds after a divorce. You may also want to learn more about collecting Social Security benefits based on your ex spouse’s work history.
The importance of a QDRO
Like many married couples, you and your ex might have both saved for retirement through your employer. This means that there is at least one account in your name, and one in your spouse’s. If the two accounts have similar balances, you might decide to each keep your own and call it a day. But what if one account has significantly more?
If this is the case, one of you will need to transfer money to the other’s account. There are usually taxes and penalties for early withdrawals, but a QDRO is a legal document that allows you to bypass these costs. However, you can only transfer retirement funds earned during the marriage. Any money that was in the account prior to saying “I do” should still be your separate property.
Collecting Social Security benefits
You may have factored Social Security benefits into your retirement plan, which is actually pretty common. However, you might be worried about collecting those benefits if you do not have much of a work history. Perhaps you left the workforce to raise children, care for a loved one or to simply support your spouse’s career. You can still collect benefits based off your former spouse’s work history — not your own — so long as:
- You do not remarry
- You are at least 62 years old
- You ex has a right to benefits
- Benefits through your ex’s work record are greater than through your own
You can start claiming Social Security benefits once you hit age 62, even if your ex has not applied for benefits yet. Do not worry about possibly depleting his or her benefits, either. Even though you are receiving benefits because of his or her work record, you are not actually taking your ex’s benefits.
Protect your retirement
You should be sure to reevaluate your retirement plans. Supporting one person through retirement will not require as much money as supporting two, but dividing retirement benefits can still make things difficult. Your actions following your divorce can also impact your financial stability. For example, if you get remarried, you will no longer qualify for Social Security benefits through your ex’s work history.
You deserve to retire with dignity and financial security just like anyone else in Ohio. Now that you understand how divorce may impact this, you should not delay in taking action. Working closely with an experienced attorney could be key to protecting your future retirement.