Connecticut family law: older divorces and division of retirement assets
The baby boom generation is aging and as this large sector of our population reaches retirement age, they are doing something else more often – divorcing. This trend raises concerns for older Americans who face their golden years unexpectedly alone.
The needs of someone divorcing later in life are unique because he or she does not have the luxury of time to build up wealth for retirement. The financial arrangements and division of assets negotiated between the parties or ordered by the court will impact an ex-spouse’s lifestyle in retirement as well as how much he or she can help grown children with college or other expenses.
This heightens the importance of fair division of retirement assets in a “gray” divorce. Unfortunately for baby boomers, many retirement accounts have either dropped in value or slowed in growth in the current economic downturn. Some people have had to dip into retirement funds early to make ends meet, save their houses from foreclosure or compensate for lost jobs.
A divorcing baby boomer needs to think carefully about the proposed budget to bring into divorce negotiations. Will it be possible to maintain his or her current lifestyle? What are the realistic financial expenses of a newly single person at his or her age? How many working years does he or she have left? A financial expert can help explain these realities, and that information in turn can help a divorcing older spouse to negotiate or present evidence in court of actual, projected needs.
Related issues in older divorces include alimony; future ownership of family homes; life, disability, medical and long-term care insurance; college tuition needs; and care expenses for adult disabled children.
What is a retirement asset?
Retirement accounts include many different vehicles to which money and assets may be contributed earlier in life for eventual use in retirement. They usually receive favorable tax treatment. Most common are 401(k)s, IRAs and pensions, but many others exist. The more wealth a couple has, the more likely that other, more sophisticated types will be utilized.
Especially in a high-net worth divorce, related assets that will have to be divided in divorce include stock options, business and partnership ownership interests, future bonuses, golden parachutes, executive compensation plans and various fringe benefits.
Connecticut divorce law
Connecticut law governing how property is to be divided in divorce gives the court a fair amount of discretion as compared to many other states. For example, the judge can assign ownership of any property belonging to either spouse to the other if the court deems it the best way to make an “equitable distribution.”
Retirement assets are included in the property to be divided in divorce. In Connecticut, all cards are on the table – the spouse who earned the asset or owns the account does not automatically have the right to keep it all after divorce. The equation may be complicated by whether a retirement asset is fully vested or accrued yet and by the likelihood that it will be.
Sometimes part of the final resolution is the drafting and entry of a “qualified domestic relations order” or QDRO that orders the administrator of a retirement fund to distribute the funds a certain way between the parties in the future.
Seek legal counsel
If you face a divorce as you approach retirement age, consult an experienced Connecticut family law attorney for advice. Your lawyer can help you try to negotiate a fair settlement that would give you more control over what happens to retirement assets than leaving the division up to a judge. A skilled attorney can help you resolve important related matters like valuation and tax issues.