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How are retirement benefits decided during a gray divorce?

On Behalf of | Nov 1, 2021 | Divorce

A gray divorce refers to situations where the marriage between people over the age of 50 dissolves. Divorce at any age brings financial complications for the separating partners. However, someone near or past retirement age might have additional serious concerns, including how a divorce impacts retirement savings. Texas law focuses on an equitable distribution approach, but settlement negotiations could become contentious.

Retirement savings and a gray divorce

Both spouses may have real estate and financial accounts in both their names. However, individual retirement accounts and 401(k)s are not eligible for joint ownership, so there’s only one person on the account. Regardless, a divorce settlement may lead to one spouse receiving some money from the other spouse’s retirement accounts as part of the settlement.

Someone who invested a significant amount of money into retirement savings may be unhappy seeing the other spouse receive some of those funds. Negotiating an agreeable settlement could appease both parties, but things may go to court if they are far apart.

Mediation could help the parties come to a viable agreement. Although non-binding, mediation sessions might overcome an impasse, leading to a settlement that avoids the time and cost associated with a trial.

Further steps related to retirement accounts and gray divorces

401(k)s bring added complexities to a gray divorce since filing a qualified domestic relations order (QDRO) becomes necessary. A QDRO allows the spouses to address how the division of 401(k) assets.

Retirees rely on Social Security and pension payments to cover their living expenses. A spouse could claim a portion of these benefits, complicating the other spouse’s retirement plans. Social Security benefits have less leeway for negotiations than other assets, although they could influence how another spouse addresses other assets.