While we believe that everyone has the right to be happy, we know for a fact that getting divorced later in life presents certain challenges that younger couples are less likely to face. Today, we want to highlight four of those challenges, so that you can enter this new phase of your life in the best possible shape.
Part One: Retirement and later-in-life divorce
Let us be clear: divorce can lay waste to the best laid retirement plans. All of it may end up being divided, especially if they were started or acquired during the course of the marriage, under the Employee Retirement Income Security Act (ERISA) of 1974. ERISA applies to “defined benefit plans and defined contribution plans.” These plans will require the use of a qualified domestic relations order (QDRO) in order to divide them.
Government pensions – state, federal, and military – all follow different rules, as do Social Security benefits, which may be awarded in some instances and not in others. The truth is, dividing retirement accounts is a complex, complicated process. Different accounts could potentially be divided in myriad ways, depending on when they started, who contributed, how long you were married, and other factors. Firm founder Tom Holland is the former General Counsel for American Pensions, Inc., so we are uniquely qualified when it comes to addressing retirement concerns.
Part Two: What will a divorce do to your taxes?
Divorce can and will affect your taxes. You will not pay taxes on your property division, but you could pay capital gains taxes based on the sale of that property. (Older couples who have accumulated a significant amount of property may be in for a shock if they choose to sell that property as part of the divorce agreement.) If you have dependent children, you may or may not be able to claim them on your taxes. Your tax bracket will likely change, too.
Part Three: How divorce can affect a business
If you own and operate a business in South Carolina, your divorce can affect it, too. It could be considered marital property, which means you could find yourself having to buy out your spouse to maintain control. It is also possible that only the interest you own in a particular business would be subject to division.
Aside from that, however, is the risk of “reputation” you may face if you have shareholders or a Board, who may get nervous about the potential risk to the company. Just look at the way the media (and the markets) responded to the news of Bill and Melinda Gates' divorce, or of Jeff Bezos and MacKenzie Scott.
Part Four: The effect of divorce on spousal support
First, know that alimony is never guaranteed. However, if both parties cannot come to an agreement about spousal support, the court may make the decision for them. That court will likely base his or her decisions after reviewing both parties':
- Age and health
- Educational background
- Earning capacity and employment history
- Standard of living
- Potential tax consequences
- Prior support obligations
On top of that, the court will consider factors such as the length of the marriage, whether there are dependent children, how the property is to be divided, and so forth. A case where both parties are “evenly matched,” so to speak, may lead the court to assign post-separation support on a temporary basis. If one party, however, is less healthy, less able to survive without help, or otherwise more in need, the court may assign alimony.
How can I protect myself from a later-in-life divorce?
No one knows what the future will bring, but there are some steps you can take to ensure that you and your loved ones are safe no matter that happens. All couples – regardless of age, wealth, or status – should have a premarital agreement. It is the single most effective tool you have for protecting your future. (Already married couples can create a post-marital agreement.) Your “prenup” can outline how you divide your property, whether one of you will pay alimony or support, how your assets will be divided in the event of a divorce, what happens to your retirement accounts, and more. It can also ensure that your children from a previous marriage are protected, and that any business interests you have are secure. Just make sure you seek legal counsel before you craft or sign one, to ensure that it is in your best interests to do so.
Another thing you can do, with or without a premarital agreement, is create a trust for your adult children. This can ensure that their futures will be more secure. Under the current rules, you can give up to $17,000 per year as a tax-free gift to any one individual. Trusts are complex arrangements, however, so it is best to work with your attorney to see if this is a good option for you.
Divorce can be challenging at any age. Having the right team on your side can make a difference. At Holland Law, we can help guide you through the process and work to protect your financial security and your future. Please call us in Fort Mill or Rock Hill today, or visit our contact page to schedule a consultation. We proudly serve the people of York, Chester, and Lancaster Counties.