Please note that all online divorce platforms are not the same. Much of the content below does not apply to BlissDivorce. BlissDivorce is the only complete online divorce solution, including property division, child custody, spousal support, and AI-powered Digital Divorce Mediation.
The impact of online divorce on retirement planning is significant. To secure your financial future, you must know how to divide your assets when you’re going through a divorce.
Although online divorce seems simple, you must still do your research and follow the law. If you want a fair settlement, you need to follow the right guidelines and handle your finances carefully.
This article will lead you through some steps you should take before starting your divorce process. It’ll also present some retirement planning tips for you to consider once your divorce is finalized.
Read on for more details about retirement planning in online divorce.
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Retirement Planning Before Online Divorce
Being familiar with the impact of online divorce in retirement planning will secure you a better retirement. During the divorce process, you should thoroughly review both your and your partner’s financial assets. Remember, this includes a close look at your retirement plans and pensions, as they also count as assets.
This process isn’t as simple as splitting everything 50/50. Different rules apply for dividing the Individual Retirement Account (IRA) and defined contribution plans like 401(k), 403(b), and employee stock ownership plans. Getting the allocation of your retirement assets right can help you avoid unnecessary tax payments.
You can only get a fair share of the retirement plan assets during divorce if you plan ahead. From researching to being listed as a survivor, here are the most important steps before starting your online divorce.
Researching and gathering the documentation
You shouldn’t take any action without doing proper research. The first step is to get a deeper understanding of how the general rules of your retirement plans work.
Start by doing your homework and taking notes on all your financial assets, the relevant laws, and any other information needed for online divorce and retirement planning. When you gather everything, the next steps will be much easier to navigate.
When getting an online divorce with BlissDivorce, you have to upload the required legal documents and both your and your spouse’s financial situation papers. Online divorce makes it easier to see what assets you’ve got before you start negotiating.
Expert Tip: If you are a non-participant spouse in your partner’s retirement plan, make sure to obtain the full documentation for assets that qualify for division. The debt is shared when one of the partners owes funds within the retirement plan. This means that if your ex-spouse passes away, you won’t be held responsible for their debts because you were not a participant in their retirement plan.
Eligibility for Social Security benefits
According to the 10-year rule in marriage, you can get a part of your partner’s Social Security benefits. Here are the conditions to qualify for Social Security benefits from your spouse:
- You were married for at least 10 years
- Your ex-spouse is not married and is over 62 years
- Your Social Security benefits based on your work are lower than your spouse’s benefits
- You have the right to Social Security retirement
Survivorship and beneficiary
Before the divorce proceeding, you have to ensure you are a beneficiary or listed as a survivor on the retirement plan. This way, you might continue collecting benefits if your ex-spouse passes away.
So, before an online divorce takes place, you must draft your future wisely. You have to do your research and gather all the needed financial and legal documentation. Verify your eligibility for Social Security benefits and ensure your status as a beneficiary or survivor in your retirement plan.
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Dividing Retirement Plans in Divorce
The contributions to any type of retirement account while you were married are considered marital assets. Retirement plans should be divided during an online divorce according to the asset and debt division rules.
The division of IRA and other retirement plans depends on state laws and the divorce settlement terms.
Dividing the Individual Retirement Account (IRA)
The division of the funds in IRA accounts can be ordered in a divorce decree or a settlement between two parties.
After you reach a settlement on the division of your retirement plan, they will be considered a “transfer incident to divorce”. That means the IRA assets are not taxed when moved from your account to your spouse’s and vice versa.
Additionally, you can claim a deduction for IRA contributions. Ensure you follow all IRS rules for dividing retirement contributions to avoid paying penalties.
Dividing a qualified retirement plan
The qualified retirement plans are divided into two categories — defined benefit plans and defined contributions plans. Some examples of qualified retirement plans are:
- 403(b)
- Keogh plans
- Profit-sharing plans
- Stock bonus plans
- Cash balance plans
- Money purchase plans
The qualified retirement plans must meet the terms of Section 401(a) of the IRS to be eligible for division during divorce.
The pension division for qualified retirement plans isn’t done automatically. Typically, a qualified domestic relations order should be filed to the court. After the order is granted, you or your spouse might have a financial benefit from the retirement account.
As a rule of thumb, your and your spouse’s benefits are divided equally.
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Protecting Retirement Savings in Online Divorce
You can do a few things to protect your savings and reduce the negative impact of online divorce in retirement planning.
Check the laws in your state
First, you should know that not all pension benefits are considered for division. Typically, only the benefits earned during your marriage will be divided.
Additionally, if you live in a community property state, you will likely have to split your retirement accounts 50/50. On the contrary, the equitable distribution states stipulate a fair division that is not always 50/50.
Bear in mind that if you reach a settlement about dividing your retirement accounts through an online divorce service, the court won’t have to apply the rules of the community and equitable distribution states.
Review the rules of your retirement plan
Check your retirement plan to see the rules for dividing assets in a divorce. Each plan has different implications if you fail to do everything by the book.
You might lose the assets even if the divorce decree assigned them to you in certain circumstances.
There are two things you need to focus on:
- How are payment methods distributed?
- Do you have the survivor’s benefit option?
So, what is the impact of online divorce on retirement planning according to the payment method you have picked?
Simply put, if you have chosen a single-life payout instead of a monthly annuity, your spouse is typically entitled to a part of your withdrawal.
Offer an alternative to the retirement plan division
One of the benefits of using an online divorce service is that you negotiate on your own terms. You have the freedom to propose a better alternative to your spouse instead of dividing your retirement plans.
Let’s say you and your spouse have retirement accounts that are almost the same. The easiest and most peaceful way to move on to the next chapter of your divorce process is to agree to keep your retirement accounts as they are.
However, you might want to simplify the division if you have a larger percentage of retirement savings than your soon-to-be ex-partner. Offer your spouse other assets in return for keeping your pension account. Proposing assets division your spouse will accept will make your online divorce easier, faster, and more peaceful.
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Planning a Retirement After a Divorce
After your divorce is final, you have to continue contributing to your retirement accounts and review them if necessary to secure a better future. Your financial situation and priorities will change when you move on with your life.
Update your beneficiaries
Your ex-spouse is likely the beneficiary of your retirement plan. Ensure you appoint a beneficiary that you can trust. It can be your child, a close family member, or a new spouse. Generally, the process of changing the beneficiary of your retirement plan is simple.
Update the beneficiaries of your IRA and other retirement plans like your 401(k). You should request a change of beneficiary to your employer or plan administrator. Next, you should complete all the necessary forms and give them to the employer with a copy of the divorce decree.
Review your retirement plan
You might want to make a new retirement plan anytime. To get this job done, you should estimate the finances you will need when you retire by assessing your lifestyle and your spending habits.
Remember to add or take out alimony and child support in your calculations.
A good general rule is to secure anywhere from 70% to 90% of your annual pre-retirement income. You should also consider making catch-up contributions if you are behind on your target retirement number.
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Conclusion
Many couples turn to online divorce platforms to dissolve their marriages. With the increasing popularity, the impact of online divorce in retirement planning is becoming significant.
Online divorce is easily accessible, convenient, time-efficient, and cost-effective. Leveraging these advantages can make your divorce process smoother and help you secure your retirement plan more quickly. Moreover, knowing how to divide your retirement plans during divorce can ensure a faster settlement.
Use online divorce services’ flexibility to negotiate a fair settlement that benefits both parties.
