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Experts say divorcees must plan carefully for retirement

When you are in the throes of a divorce, it can be difficult to think of anything other than the matter at hand. Given how detailed divorce proceedings seem to be and how carefully attention must be paid to just about everything, that is, to a degree, understandable. Unfortunately, it seems that many divorced people do not think far enough ahead and are not saving enough for the single life ahead of them.

For instance, investment firm Charles Schwab recently found that while 85 percent of married Americans save for retirement, only about 67 percent of people who either have never been married or are divorced are doing the same. Retirement experts say both numbers should be higher, but the fact that single people are saving at a lower rate means they represent a demographic that seems to need more prodding.

One retirement expert said married people seem to save more because they are accountable to another person — a husband or wife. Single and divorced people do not have to answer to anyone and this creates the illusion that they can put off saving for retirement. Most financial and retirement experts would agree that it is never too early to start saving, so this impression can be bad if it lasts for too long.

A divorce expert also said that after a split, some people choose to “treat themselves” for awhile and then fall into a pattern of overspending that cuts into how much they can save. She said if you start saving right away, even if it is not much, you get used to the idea and it becomes a habit.

If you are interested in more information about being financially prepared, your attorney may have some websites or other resources to recommend. He or she will also likely know of a financial planner or other money-matters expert to whom you could be referred.

Source: Daily Finance, “Retiring Solo: Too Many Single and Divorcees Aren’t Saving Enough,” Catherine New, Sept. 14, 2011

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Divorce and Social Security

Social Security is the main source of income for over 70 percent of retirees, many of whom are unmarried as a result of a divorce. Unfortunately, financial advisors rarely focus on how divorce can negatively affect their clients’ retirement plans.

Communications director for the Social Security Administration, Leslie Walker, encourages divorced individuals to research the rules regarding spousal and survivor benefits. Walker says that many divorced people make errors that can decrease their Social Security benefits.

Generally, you are eligible to receive spousal benefits if you were married to someone for at least 10 years who paid into Social Security. Eligibility is not affected even if you are currently divorced from this individual. If you claim these benefits at your full retirement age, you are generally given 50 percent of your former spouse’s Social Security benefits. If you worked for at least 10 years and also paid into Social Security during that time, you may be able to receive your own benefits.

However, you cannot claim spousal benefits as well as your personal work record benefits, but you are allowed to choose the benefit option that grants you with the largest amount of money. It is important to note that, if you remarry before you turn 60 years old, you are not eligible to claim benefits from a former spouse.

You are entitled to survivor benefits that equal 100 percent of your former spouse’s benefits if he or she died prior to claiming Social Security. If you remarried and divorced after the death of a spouse, you are also eligible for spousal benefits from your second marriage. However, you cannot claim both benefit options, but you can choose the option that provides you with the most money.

Source: Los Angeles Times, “Divorce can complicate Social Security claims,” Kathy M. Kristof, 3/6/2011

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Don’t lose everything when divorcing after 50

Divorce later in life is becoming more and more common. As Baby Boomers in Wisconsin are nearing retirement, many are finding that divorce is an unplanned part of their golden years. In fact, the divorce rate for people over the age of 50 has doubled, according to the National Center for Family and Marriage Research at Bowling Green State University.

Yet, divorcing after 50 can have a devastating impact on your quality of life if you are not careful with your assets. Many of the assets of those in the over-50 crowd are in retirement funds. These, if they are tax deferred, may drop in value when withdrawals are made because taxes will be taken out. Splitting the assets is challenging because of the need to consider these types of issues.

There are some ways to protect yourself from potentially devastating financial decisions. First, you need to be sure that you have legal representation and the advice of a financial planner during your divorce. Both of these will be an asset.

Next, avoid cashing in your retirement accounts during the divorce, if you can. If you make an early withdrawal, you will likely have to pay a hefty penalty. If there is some way you can divide your assets so that the retirement account stays intact, then you may be able to avoid these penalties.

Additionally, make sure you divide your debts in a fair way after your divorce. Pull a credit report on your spouse to ensure you know about all existing debts, even those who might be secret from you. After a lifetime together, it is only fair for the debts to be shared.

Source: Bakersfield.com, “Divorce misstep after 50 can be catastrophic,” Steven Van Metre, 5/13/2011

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Wisconsin Supreme Court tells ex-wife to wait for alimony

In a recent opinion upholding, the Wisconsin Supreme Court distinguished between pension benefits paid by a pension plan and disability benefits paid pursuant to the same plan.

In Topolski v. Topolski, the husband and wife both waived maintenance, sometimes referred to as alimony, when they got divorced. Mr. Topolski agreed to pay Mrs. Topolski $912 per month beginning “if and when” he started to receive pension and retirement benefits.

Mr. Topolski, an electrician, later became disabled when he was 53 years old. Accordingly, he began receiving monthly disability benefits from his pension plan. His ex-wife filed a motion for judgment for her monthly payments, with interest, in arrears from the date of his disability.

Mrs. Topolski received a judgment for $83,072 plus interest from the divorce court, and the judge held Mr. Topolski in contempt of court for not making the monthly payments to his ex-wife. Mr. Topolski appealed that order on the basis that the court’s order amounted to maintenance.

The Court of Appeals reversed the Circuit Court, and Mrs. Topolski appealed. Siding with her ex-husband, the Wisconsin Supreme Court held that the plain and ordinary meaning of the language in the parties’ agreement, “pension and retirement benefits,” did not include the disability benefits that Mr. Topolski had received from the pension plan. Instead, Mr. Topolski must begin paying Mrs. Topolski when he turns 62, the age when he becomes eligible for pension benefits.

A dissenting opinion pointed out that the Circuit Court merely divided the disability benefits, an asset that the marital settlement agreement did not dispose of in the divorce. The parties agreed to divide “all” pensions, said the dissent, and the disability payments were, in effect, a pension plan.

Source: WisLawJournal.com, “Be careful what you bargain for, you might just get it,” Gregg Herman, July 14, 2011

Topolski v. Topolski, 2009AP2433-FT, (Wis. 2011)

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