Gray Divorce and Retirement Assets

When saving for retirement, most couples try to plan for how to continue their standard of living for an extended period of time after retirement. They “do the math” to determine how their household will function financially when there is no longer new income coming in.

But, what happens when one household becomes two? No one ever plans for this event.

Arizona is a community property state. When it comes to retirement accounts, that means any value gained during the marriage (contributions and growth of the account) is equitably divided upon divorce.

An important thing to remember when dividing retirement accounts, such as an IRA, 401(k), and/or 403(b) accounts, is that these accounts need to be divided properly in order to avoid taxes and penalties.

Do not simply cash out half of the value of an account and write your ex-spouse a check. You need to obtain legal advice on how to properly divide these accounts without penalty or tax.

When it comes to pension plans, courts in Arizona use different methods to divide those assets, depending on the retirement age of the spouse who has the plan. For example, if a spouse is retired or about to retire, the court can calculate the percentage that each spouse receives and order the plan administrator to pay each spouse accordingly.

If retirement is several more years away, for example, a 55 year old who won’t be able to draw on the pension until 65, the court may determine what the present value is of the account and order a lump sum payment of some other property to be awarded to the spouse without the pension.

Social Security is also a major consideration. Social security is governed by federal, not state law. What that means is the divorce court cannot do anything about it; it is what it is.

If you are divorced and your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse’s record (even if they have remarried) if:

  • You are not married
  • You have met certain age requirements
  • Your ex-spouse is entitled to Social Security retirement or disability benefits and
  • The benefit you are entitled to receive based on your own work history is less than the benefit you would receive based on your ex-spouse’s work.

As you can see, there are many unique financial considerations when it comes to divorce during the years nearing and in retirement.

If you are at or are approaching retirement age and are considering divorce, and you would like to work with one of our experienced Attorneys, please call OWENS & PERKINS at (480) 994-8824 to schedule your free 30 minute consultation.