Retirement planning and your Wisconsin Divorce
When you have been in a long-term marriage, it can be unsettling to consider the financial realities of divorce. One issue that can be particularly difficult to grapple with is retirement. Most married couples plan on retiring together and don’t plan on being single during retirement. Retirement planning in your Wisconsin divorce may not be what you expected.
In recent celebrity news, “The Avengers” actor Clark Gregg filed for divorce from “Dirty Dancing” actress Jennifer Grey. In July, the couple, who separated earlier in the year, publicly announced their split as amicable. Gregg, age 58, and Grey, age 60, have been married for 19 years and have one adult child together. Although the two actors are well known, they probably have a lot in common with many couples divorcing during this stage of their lives. During their nineteen years, it’s probable that the two earned and saved money, bought a home, acquired assets, and made other decisions expecting to remain together forever. The terms of the couple’s divorce were confidential. However, if Gregg and Grey are like other couples ending long-term marriages, the famous pair would have considered their property and debts in combination with their retirement plans before reaching a divorce settlement.
Wisconsin Property Division During Divorce
Wisconsin is a community property state, and outside of some exceptions a couple will own what they have earned and bought during their marriage equally. This includes retirement accounts and social security benefits.
Retirement accounts can include 401(k)s, Roth IRAs, IRAs, 403(b)s, and military retirement. In Wisconsin, it is presumed that all assets will be divided equally, but certain factors may mitigate equal division. For instance, if Frank was married to Gina for four years, but Gina had a retirement account during that time which began 20 years previous to the marriage, the court may deviate from and equal division of that asset, since much of it accumulated before the marriage.
Premarital assets are NOT exempt from the marital estate, but the length of the marriage can certainly impact how an asset is divided.
Military retirement is viewed differently as well. A service member is awarded retirement based upon years of service. Their spouse has no claim on that asset (per the military) unless there is a certain number of years of marriage and those years overlap with the member’s service. But in Wisconsin, the value of that retirement is still considered marital and thus divisible. The spouse can be awarded a percentage of value of the military retirement based on a specific calculation. Even if the military won’t divide the actual asset, the spouse can still be awarded their share of the asset through direct payment by the service member. Again, how the asset is divided (how much) can depend on the length of the marriage and how long the service member contributed to the retirement plan before the marriage.
Under Social Security regulations, when a couple has been married for ten years or more, upon divorce a divorced spouse may receive benefits on their former spouse's record if, at the time of retirement: they are not remarried, they are age 62 or older, their spouse is entitled to Social Security, and 100% of their own full benefit is less than they would receive from 50% of their ex's benefit.
Your Wisconsin “Grey Divorce”
“Grey divorce” generally refers to divorce for couples over age 50 and often involves long-term marriages. According to one study, "the risk of divorce has more than doubled since 1990” for couples in this age group. Couples getting divorced when they are nearing their golden years presents some different challenges. Most married people have bought property together, paid into retirement accounts, and made calculated decisions based on the idea that they would be sharing one home and possibly two incomes during retirement. Suddenly having to divide everything and living on half of what you expected could be financially devastating for both partners. Further, suppose one person stayed home and raised children or took a less lucrative career path so that the other could provide for the family. In that case, he or she may require spousal maintenance or more of the community assets to be self-supportive during retirement. There is also the matter of health insurance. Depending on your age and condition, it may be challenging to get affordable coverage to supplement Medicare.
Dividing Retirement Accounts
It may seem like dividing retirement would not be a significant issue for couples who have not been married long or who are younger. However, a retirement account can be one of the most valuable assets during a divorce in many cases. While they may not have high dollar values presently, these accounts will be a secure source of income when they vest. Having to divide even a small fraction of their value will mean that you will have less to live on when you retire. If you were married while you earned your retirement, your account is probably going to be subject to division under Wisconsin divorce law.
How to Divide Retirement Accounts in a Wisconsin Divorce
There are various types of retirement accounts, including IRAs, 401(k)s, and 403(b)s. These types of accounts will be mentioned in a divorce settlement and final documents, but to effectuate the transfer of most retirement interests, you will need to arrange for a separately prepared instrument called a Qualified Domestic Relations Order (QDRO) to be drafted. Without a QDRO, the funds can’t be transferred. There are specific DRO requirements for military retirement plans as well, and specific language must be included in your final divorce documents for a military pension to be divisible. You will also need to go through specific steps with U.S. Military Defense Finance and Accounting Service (DFAS) to divide these benefits payments.
Spouses also have the option of dividing or agreeing to divide their assets in a way that allows each to keep their respective retirement accounts. This usually involves one person getting more of the community property to compensate them for their equitable share of their spouse’s retirement benefit.
Retirement benefits are a complicated and important issue during a divorce. Therefore, it's vital to have the right advice to make informed decisions during the process. Attorney and Mediator Karyn Youso of First Look Family Law has extensive experience assisting clients during divorce and can help you determine your next steps.