Divorce is a disruptive process. It doesn’t just end your marriage. It also destabilizes your relationships with many other people, at least for a short while. Your emotions will be more volatile than usual, even if you chose to file and know you made the right decision. Your stress levels will likely skyrocket.
Everything from your living arrangements to your budget could change, and you often won’t know the exact changes until after the courts finalize your divorce. It may take you some time to really rebuild your life and create a new plan for your future.
Retirement plans often require a drastic overhaul following a divorce. What impact will your divorce have on your plans to retire?
You may need to split your 401(k) or pension
The balance that you currently have in your retirement savings account or the accrued pension benefits you have with your employer may be on track to provide for you and your spouse according to your initial retirement plan, but you will likely have to divide those accounts.
At the very least, the amount that you contributed during the marriage will be part of the marital estate that influences the division of all of your assets. Your spouse may have a claim to an account solely in your name, and the reverse is also true.
The good news is that if you use a Qualified Domestic Relations Order (QDRO) approved by the courts and drafted in compliance with your property division order, you will not incur any penalties or fees for early withdrawal when you split the account.
You may have to adjust your retirement expectations
Splitting your retirement savings with your ex will impact your budget during retirement. You might be able to recover from that loss through more intense saving over the next few years. You could also adjust your prior plans and work for a few more years than you initially intended.
Some people look at other ways to reduce retirement costs, like Medicaid planning for when you grow older or arranging to live with friends to share housing costs. Keeping your focus on long-term stability can minimize the impact of a potential future divorce on your golden years after retirement.