Have you been saving diligently for retirement since you first started working? You’ve probably given up a lot of immediate gains in the form of nights out, expensive clothes or a flashy car in favor of preparing for your golden years. It is a tough thing to do, that is delay gratification, as a young person looking down the road. However, I’ve never met a person in my personal or professional lives who has regretting saving money for their retirement. All it took was having a goal in mind- having a big enough “why”, in other words.
On the other hand, you may find yourself in the exact opposite position of not having saved up much of anything for retirement at this stage in your life. Depending on your age, you may be nearing a “danger zone” of not being able to have enough to retire by the age that you wanted to stop working. Retirement isn’t an age thing, by the way. It’s an income thing. Specifically, do you have the money in savings sufficient to draw an income from that will allow you to live comfortably. If you do, then you have the means to retire. If not, you’d better set your alarm on Monday morning.
This brings us to the topic of retirement and divorce. The Law Office of Bryan Fagan represents a group of people as diverse as the city and area in which we all live. That means we have the fortune to help folks who are young and going through divorce. If you can count yourself among this group then you have time on your side when it comes to saving for retirement. That’s the nice part because odds are good that you do not have much in the way of savings for retirement due to your age.
We also have the opportunity to represent folks who are further along in their careers and retirement savings. If you are an established professional, work in the trades or otherwise have devoted some time and effort into planning for your retirement I would recommend that you do a couple things. For one, I would speak to your financial advisor about retirement. I do not mean to say that you should seek legal advice from a person who is not equipped to provide it to you. However, what I am saying is that this person can help guide you from a financial perspective both now and in the future. The other thing I would recommend is that you pay attention to the information I am about to provide you with.
With that introduction complete, let’s jump into a discussion on retirement and how you can start a mini-checklist before your divorce even begins. While there are other issues that will compete for your attention in a divorce, few others are as important as retirement. What you decide to do now in your case can impact your life for decades to come.
Do you know what your retirement picture looks like?
Retirement for some of us means getting set up in some sort of retirement vehicle (401(k), IRA, etc.) very early on in our working lives and then not really paying much attention to the investments that are within each account. We get statements every quarter letting us know how the investments are performing but we either delete the email without reading it or toss the updates out with all the other “junk” mail. This is not a great way to manage what should turn out to be some pretty hefty financial assets.
I would recommend that you take a second look at your investments before your divorce begins. There Is no better time than the present to figure out what you are invested in, how the investments are performing and whether or not you need to make a change. If you have a financial advisor I would think that now would be a great time for you to sit down with him or her to discuss how things have been going. Come up with some questions to ask the advisor. If the questions are not answered and/or are not given enough time by the advisor then you may need to figure out a different direction to go in.
Once you have figured out where you are invested and whether or not you are satisfied with the investments then you should begin to look at whether or not your retirement account(s) are subject to being divided in the divorce. Funds contributed to retirement accounts during the course of your divorce are likely to be community property. This means that you are likely going to have to divide that account in your divorce. It doesn’t matter if the retirement account was funded by income from your job or has your name on it. That’s not how community property laws work in Texas. All that matters is when the account was contributed to and where the funds came from.
Depending on your age and how much you have saved for retirement you may be more or less willing to allow your spouse to share in the savings. For example, if you are an older person going through divorce you may want to do everything possible to keep your retirement benefits intact and not have to divide them in the divorce. This could mean offering equity in your home, non-retirement stocks and mutual funds, rental properties or other financial assets to your spouse in the divorce. This would not make him or her any worse for wear as far as financial security is concerned because they would take on a financial asset equal to what they could have been paid from your retirement.
Dividing up a retirement investment in a Texas divorce
A Texas divorce will utilize a Qualified Domestic Relations Order (QDRO) in order to divide up a retirement account. I will give you a brief, general overview of what a QDRO does in conjunction with a divorce. Essentially, a QDRO is a court order that will eventually be signed by the judge in your case which provides instructions on the manner by which your retirement account may be divided. The order is addressed to the plan administrator for your retirement plan or account. That plan administrator will follow the orders and go through the process of getting to your spouse any monies owed to him or her.
The plan administrator is an important person to get in touch with early on in your divorce. The reason being is that your divorce decree and QDRO can say whatever they want in relation to dividing up your retirement account, but if the plan itself doesn’t allow for something your divorce decree will not trump the plan and what is required of its participant investors (you) as well as the plan administrator. Your best bet is to find out who administers your retirement plan and to speak to that person as early as you can in the process. He or she can provide to you the specific language that needs to be included in the QDRO so that there ae no delays in getting the retirement division started after your divorce is finalized.
The QDRO will need to reflect the terms of your settlement or the orders set forth by the judge in your divorce trial. In most divorce cases the QDRO will be filed along with the Final Decree of Divorce. Once the judge signs the document you would obtain a copy, send it to the plan administrator and would pay your ex-spouse whatever he or she is owed as a result of the divorce.
Other considerations to plan for and check over prior to the start of a divorce
We’ve come to end of our series of blog posts that have dealt with preparing for divorce in Texas by creating mini-checklists for you to go through. While you cannot complete a divorce before it starts you can definitely spend some time preparing and problem solving so that you are not caught flat footed on any of these important issues during the divorce itself.
Do you have a life insurance policy, trust or will? Everyone over the age of 18 should have a will in my opinion. Wills are important because if you pass away the will can allow your parents, next of kin or children to deal with the issues of your passing with greater ease. Something as simple as transferring title to your vehicle after you pass away could be more difficult than it ought to be if you do not have a will.
Back to our discussion. If your ex-spouse is listed as the beneficiary under any of these documents then you should begin to change that as soon as you are able. Sometimes you will not be able to remove your spouse from your will or from life insurance during the divorce. However, you do not want to get into a situation where you have spent a great deal of time getting divorced only to find that you did not update your will, trust or life insurance. Imagine your ex-spouse inheriting from you after your divorce rather than your children or other relatives.
The next thing I would put on your checklist would be a list of creditors, banks, investment houses or other financial institutions that you need to contact after your divorce. These places should know that you and your spouse are divorced and that, for instance, your spouse can no longer sign for you and that you cannot receive updates on accounts held by you all jointly. If you need to remove your name from an account, receive a separate bill or close an account after the divorce you should start to think about this now rather than to wait until it comes time to negotiate or complete the case.
Health insurance may be the last thing on your mind while you prepare for a divorce but it is important. Specifically, who is going to be on what plan when the divorce concludes is not something that you want to be left holding the bag on as your divorce wraps up. There is no doubt that your children will need to be insured after the divorce. Whether that coverage is from you, your spouse or the government, it pays to consider your options. You may be able to keep coverage through your ex-spouse’s insurance for a period of time after the divorce but eventually you will need to figure out how to get your own insurance coverage. Your own work may provide you with an option to purchase insurance in which case you will need to figure out when open enrollment is so that you can sign up.
The last thing that I would recommend you check off your list is in regard to budgeting. If you have never kept a budget for yourself and your family now is a perfect time to start. Your household income will be changing as a result of your divorce. You may find yourself back in the workforce for the first time in years. Or, you may find yourself with more money to your name at the end of your divorce than you had ever held previously as a single person. Whatever the case may be, it is wise to assign every dollar of income you have on a monthly basis to a specific task. That way you will not end up wondering where all your money went when it comes time to pay bills.