The Importance of Retirement Division in a Gray Divorce

 Posted on December 13, 2024 in Property Division

Senior baby boomers are currently experiencing divorce rates that are triple those of only a few decades ago. This phenomenon is known as "gray divorce," describing those 65 and older who are divorcing. In 1990, divorce rates among this demographic were about 5 percent, but in 2022, those numbers had increased to 15 percent.

There are many reasons for divorces later in life, including having no children remaining at home, arguments over money, retirement disagreements, infidelity, health challenges including serious chronic conditions, changing expectations, and simply growing apart. While divorce has economic impacts at any age, some considerations are particularly significant for older adults, including the division of one spouse’s retirement fund.

If you are considering a divorce later in life and want to be sure there is a fair division of retirement funds, it is important that you speak to an experienced McKinney, TX divorce lawyer from The Ramage Law Group. There are many complex issues surrounding retirement division at any age, so having a lawyer who fully understands all those issues is essential to a fair division.  

How is Retirement Fund Division Addressed in a Gray Divorce?

For couples over 60, dividing marital assets is likely to include splitting up a retirement fund. Many couples have been adding to their retirement funds for decades, making many retirement funds worth as much as the marital home – or more. These accounts are considered marital assets to be divided between spouses under Texas community property laws, yet division can seriously disrupt one or both spouses’ retirement plans.

In general, anything a spouse contributes to a retirement plan prior to the marriage is considered separate property, while anything contributed during the marriage is considered marital property. When 401(k) or pension retirement plans are being divided, a Qualified Domestic Relations Order (QDRO) is necessary. A QDRO is a legal document ensuring that retirement funds are split fairly and the division is done properly.

Individuals nearing retirement age can see a drastic reduction in their retirement savings when they are split between two people. This can result in one or both parties being forced to work much longer than anticipated before retirement can occur. A QDRO is a legal order following a divorce that splits the ownership of a retirement plan, changing the ownership and giving the other spouse his or her share.

The retirement plan administrator must receive a copy of the divorce decree along with an original, certified copy of the QDRO. Depending on the retirement fund agreement, the non-owner spouse may receive a portion of the monthly retirement payment when the owner spouse retirees. If a lump-sum amount is determined to be owed to the non-owner spouse, then at least a portion of the retirement fund must be cashed out early to pay this amount.

Cashing out a retirement fund early often results in tax implications, which must be taken into consideration during the division. Some retirement funds do not allow early withdrawal, while others charge a significant penalty. Both attorneys for the divorcing couple must look at all of these issues to ensure the division of the retirement fund is fair yet results in the least amount of penalties and taxation.  

Contact a Collin County, TX Gray Divorce Lawyer

A gray divorce can turn retirement plans upside down, leaving both spouses with far fewer financial resources. This leads to financial challenges and a more uncertain future. A McKinney, TX gray divorce lawyer can help ensure both spouses have the best retirement and financial future possible. At The Ramage Law Group, our firm focuses on collaborative law and client relationships. We are an all-woman firm with multiple attorneys. Call 972-562-9890 to schedule an initial consultation.