More couples over the age of 50 are filing for a divorce in New York as a way to start a new chapter in their lives. For many, requesting proceeds from a soon-to-be-ex-spouse’s retirement fund may provide the financial means to reach their goals.
Because the Empire State divides marital property under its equitable distribution laws, a spouse who never worked during the marriage may receive a portion of the working spouse’s retirement fund. Retirement accounts, however, each have their own procedure for dividing proceeds during the divorce.
Individual retirement accounts
Dividing an individual retirement account may result in an early-withdrawal penalty or tax liability, as reported by Forbes magazine. A family court judge generally determines how much of an IRA is fair for each spouse to receive. When a spouse receives his or her share, rolling the proceeds into his or her new IRA may help reduce an individual’s obligation to pay income tax and withdrawal penalties.
Pension plans, 401(k) funds and QDROs
A qualified domestic relations order enables a spouse to request proceeds from an employer-sponsored retirement fund such as a pension plan or a 401(k). Under federal law, a plan’s administrator may provide an ex-spouse with either a lump-sum payout or a percentage of the retirement fund’s assets with a QDRO filing. A spouse may choose to request the proceeds during or after the divorce.
Starting over after a gray divorce
Some individuals may view a late-life marriage dissolution as an opportunity to embark on a career they had put on hold. By requesting their portion of the proceeds from a retirement account, the means to begin a new stage of life may become a possibility. Others may decide it is time to settle down and enjoy the type of lifestyle envisioned without a spouse. Planning carefully for a new budget may help in determining how much alimony or spousal support an individual may either require or be able to comfortably pay.