Your divorce agreement or decree puts to rest the legal issues involved in the divorce. That said, it does not necessarily resolve all the practical issues. Some of those practical issues involve following up on your retirement accounts.
You’ll want to ensure any division is completed correctly and that your accounts are as you want them going forward. Here are a few tips.
Follow up on your QDROs
A qualified domestic relations order (QDRO) is required by the IRS whenever shared IRAs, 401(k)s, 403(b)s and other retirement accounts are divided. It is needed to ensure that people below the age of retirement aren’t charged taxes and early withdrawal fees when moving assets due to a divorce.
In fact, many plans require a QDRO that complies with plan rules in order to make divorce-related transfers. A plan-compliant QDRO should be part of your divorce settlement or decree if you planned to move any retirement assets. However, it’s a good idea to follow up with each affected plan to ensure that they received the QDRO and consider it compliant. If they don’t, contact your divorce attorney.
Change your beneficiaries
A few minutes online could be the difference between leaving your retirement account and life insurance to your children or leaving them to your ex. If you die while your ex is still listed as the beneficiary, the account assets will go to your ex.
Reconsider your retirement plans and asset allocation
The retirement plans you made as a couple no longer apply. You may be in a better position, as single people require less in savings than couples. Or, once your retirement accounts are divided you may find that you’ve fallen behind. Either way, you need to reconsider your plans. Assess your existing savings and set goals. Then, realign your investment allocation. More risk generally translates to greater potential rewards, while a more conservative approach preserves your assets’ value. Consider your tolerance for risk, which may be different now.
Review your Social Security retirement options
Social Security payments are based on your top 35 years of earnings. If your ex earned substantially more, or if you have gaps in your earning years, you may be better off making a claim against your ex’s Social Security account than your own. To be eligible, you must have been married for 10 years before the divorce and you cannot remarry before age 60. The Social Security Administration can help you run the numbers — half of your ex’s Social Security benefit level or your own.
Once you’ve taken care of these practical details, you can consider the divorce process complete and move confidently in a new direction.