Clients often need to plan for divorce with retirement in mind. In the past, I have explained the importance that custody and child support agreements may play in a divorce. Clients without young families, however, do not have to make all decisions based on the impact on the children. When discussing retirement after divorce, maintenance, pensions and social security are usually the main items that come to mind.
Assuming the couple has been married for at least ten years, the former spouse with the lower income may qualify for social security at fifty percent of the other’s earnings level. If the lower earning spouse is married to someone else at the time of collection, this would disqualify him or her from collecting at the level of the first spouse. This means that if this spouse is still remarried at retirement time, he or she will have no choice but to take the benefit either at his or her own earnings level or that of the second, current spouse. However, if the second marriage also lasts for at least ten years and ends due to a second divorce or a death, the lower earning spouse has a choice of two spouse’s earning levels to base their benefit on, whichever is greater. The good news is that collecting this benefit at either earning level does not diminish the former spouse’s benefit, so it’s a win-win for everyone!
Pensions are a more complicated scenario. Depending on what type of pension a spouse has, whether he or she acquired part of it prior to the marriage etc. the other spouse may be entitled to a portion of it upon divorce. Normally we have a pension valued and a Qualified Domestic Relations Order, or QDRO, drawn up so that a client can get his or her portion of the pension when it is time. There is a formula which was established by a State Court of Appeals case, Majauskas v. Majauskas, which is most often used when determining the spouse’s equitable share of the pension. We will, however, sometimes waive a spouse’s right to a pension in a divorce. For instance, if each spouse has a pension with similar value, it might not make sense to go through the expense and time to have them evaluated. Sometimes parties find it better to swap the value in a pension for a larger portion of real estate or other marital property in equitable distribution.
Should one spouse be in the position of never having worked and been a homemaker all their life, he or she might also qualify for maintenance which used to be called alimony. Depending on this spouse’s education, health, ability to earn, separate assets, plus a number of other factors, the other spouse might be obligated to provide him or her with monthly maintenance for a period of time. As of 2016, New York has new maintenance guidelines which can be helpful in estimating the amount and duration a court would award. Due to new tax law, maintenance will no longer be deductible to the payor or considered income for the payee for any agreement signed after December 31, 2018, so this needs to be taken into consideration.
Those that may be alone in retirement may also want to consider what will happen if they become ill or have a deteriorating condition. I would suggest drafting an estate plan including a will, health care proxy, power of attorney and living will. These documents will be necessary to control who makes decisions for a person when he or she cannot. They will also ensure that any money or property left will go to the people chosen by the deceased. Those concerned with not being a financial burden to their adult children and the likelihood that they will need care beyond what family can bear should also look into long term care policies.