Financial Planning for Divorce Later in Life

 Posted on January 29, 2025 in Divorce

For those ending a long-term marriage later in life, financial concerns often take center stage, primarily because people nearing retirement or already retired must carefully plan for their future. A well-structured divorce settlement is particularly important in these situations; such a settlement can help protect assets, secure future income, and prevent unexpected financial hardships. If you are considering divorce but have concerns about how it could impact your finances, an Illinois divorce lawyer can help you make informed decisions. Here are just a few things everyone considering divorce should think about.

Anticipate the Impact on Your Retirement Savings

Many types of retirement funds, including 401(k)s and pensions, require a Qualified Domestic Relations Order (QDRO) to split the funds without penalties. A QDRO is a court-approved document that allows one spouse to receive a portion of the other spouse’s retirement account. Without a QDRO, withdrawing funds could result in taxes and early withdrawal penalties.

Know Whether You Can Plan On Social Security Benefits

People married for at least 10 years may qualify for Social Security spousal benefits based on an ex-spouse’s work history. These benefits do not affect the ex-spouse’s payments, and they can provide significant financial relief. Understanding eligibility rules can help you maximize retirement income after divorce.

Review Health Insurance Options

Health insurance often becomes a major concern after divorce. If one spouse relied on the other’s employer-sponsored insurance, coverage may end after the divorce is finalized. People over 65 may qualify for Medicare, but those younger than 65 may need to find private insurance. Some employers offer COBRA coverage, which allows a person to stay on an ex-spouse’s plan temporarily, but COBRA can be expensive. Exploring all options early in the divorce process is important for preventing gaps in coverage.

Reevaluate Living Expenses and Housing Costs

Many spouses expect to stay in the marital home, but maintaining a house alone can be so costly that it drags down quality of life and even jeopardizes financial security. Property taxes, upkeep, and mortgage payments may be difficult to manage on a single income. Instead, selling the home and downsizing might provide more financial security.

Update Estate Plans and Beneficiaries

After a divorce, many legal documents need to be updated. Wills, trusts, and powers of attorney should reflect the new circumstances. If a spouse is listed as a beneficiary on a life insurance policy, retirement account, or investment account, those designations should be reviewed. Failing to update these documents could result in unintended consequences, such as an ex-spouse inheriting assets.

Understand Tax Implications

Dividing assets in a divorce can have unexpected tax consequences. Some assets, such as retirement funds and investment accounts, may be taxed differently when withdrawn or sold. Spousal support (alimony) is no longer tax-deductible for the paying spouse, nor is it considered taxable income for the receiving spouse under current tax laws. These and other concerns are important when thinking about how your taxes will be affected the first year after your divorce is completed.

Contact a Mt. Prospect, IL Divorce Lawyer

Financial stability is a top priority in a divorce, especially for those nearing retirement. The Northwest Cook County, IL divorce lawyer at The Law Office of Nicholas W. Richardson, P.C. can provide guidance on asset division, retirement planning, and other financial concerns. Call 847.873.6741 to schedule a free consultation and discuss the best strategy for you when it comes to protecting your future after divorce.